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Gulf markets: the liquidity well runs dry

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 supply side. It has taken a while, but finally, the region’s governments are feeling the impact of the oil-price drop as they discover a shortfall in meeting their budgets.

“We were operating in something of a suspension of disbelief for much of the latter part of 2014 and the first half of this year,” says Andy Cairns, managing director, global head of debt origination and distribution at National Bank of Abu Dhabi.

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