Low oil prices caused a 58% decline in corporate and infrastructure bond and sukuk issuances in the Gulf countries in the year ending August 31.
Ratings agency S&P, which produced the figure, says the decline is partly due to budget tightening in infrastructure projects from government-related entities in the region.
“With regard to entities exposed to the oil and gas industry, a sharp reduction in capital expenditures is also leading to lower issuance,” says the firm in a statement.
Although governments in the region are still investing in large public sector infrastructure projects, “the longer the oil price remains near current low levels, the higher the likelihood of seeing more infrastructure projects postponed or dropped,” says S&P credit analyst Karim Nassif.
Low oil prices are also the cause of lower credit ratings for some Gulf sovereigns. S&P lowered
its ratings on Bahrain and on Oman this year, while the ratings on Bahrain and Saudi Arabia are on negative outlook.
Despite the gloomy outlook, S&P says a decline in liquidity at local banks could bring new issuers to the capital markets in the coming year, helping to stop the decline in corporate bond issuance.
S&P also points to the opening of the Saudi Arabian stock exchange to foreign investors as a potential spur to new issuance, as well as the opening of the Iranian market following that country’s nuclear deal with the US and its allies.
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