Arab states face US$94b debt crunch on oil slump

[DUBAI] Gulf Cooperation Council countries may struggle to refinance US$94 billion of debt in the next two years as the region faces slowing growth, rising rates and rating downgrades, according to HSBC Holdings Plc.

Oil-rich GCC states have to refinance US$52 billion of bonds and US$42 billion of syndicated loans, mostly in the United Arab Emirates and Qatar, HSBC said in an e-mailed report. The countries also face a fiscal and current account deficit of US$395 billion over the period, it said.

Expectations that these funding gaps "will be part financed through the sale of sovereign U.S. dollar debt will complicate efforts to refinance existing paper that matures over 2016 and 2017," Simon Williams, HSBC's chief economist for the Middle East, said in the report. "With the Gulf acting as a single credit market, the refinancing challenge will likely be much more broadly felt" and "compounded by tightening regional liquidity, rising rates and recent downgrades," he said.

GCC states, which collectively produce about a quarter of the world's oil, are taking unprecedented measures to shore up their public finances as crude prices struggle to rebound from the lowest levels in 12 years. The countries, which include Saudi Arabia and Oman, have also been hit by a series of rating cuts, while billions of dollars have been drained from the region's banking system.

Gulf countries have about US$610 billion outstanding in FX- denominated bonds and syndicated loans, HSBC said. This includes financial and corporate debt, as well as sovereign debt, mainly in the UAE, Bahrain and Qatar, it said.

HSBC is confident that the funding gaps will be covered and expects a "raft" of foreign sovereign bond issuance to fund budget deficits. Any new issuance will have to compete with upcoming refinancing needs, the bank said.

Almost half of the maturities due in the next two years are in the banking sector, HSBC said, "suggesting any increase in costs at refinancing could quickly feed through into a broader monetary tightening." BLOOMBERG