Gulf markets: the liquidity well runs dry

Chris Wright
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The drop in the oil price has combined with a general lack of liquidity to put issuers from Gulf states in an unfamiliar position. There may be no need to fear a crunch, but the region’s issuers must get used to the fact that they will have to pay up to raise capital.

There are two trends underway in the Gulf capital markets, individually interesting but problematic in combination. On the one hand, a low oil price is finally pushing sovereigns back to the debt capital markets, often for the first time in years, with spillover effects that will increase the need for external funding for everyone from the banks to private companies. On the other, both local and international liquidity for debt funding from the region is ebbing. Put those two together and you have all the ingredients for a crunch.

There’s no great cause for alarm: a region of double A-rated sovereigns with little or no debt is always going to find a willing audience when it really needs one. But there is a sense of a new reality dawning in the region’s capital markets, and it’s going to take some getting used to.

First, on the...