MENA Sovereign Debt Report 2014: Commercial Borrowing To Increase To $56 Billion

Primary Credit Analyst: Trevor Cullinan, Dubai (971) 4372-7113; trevor.cullinan@standardandpoors.com Secondary Contacts: Christian Esters, CFA, Frankfurt (49) 69-33-999-242; christian.esters@standardandpoors.com Ana Jelenkovic, London (44) 20-7176-7116; ana.jelenkovic@standardandpoors.com Patrick W Raleigh, London +44 (0)2071767194; patrick.raleigh@standardandpoors.com Elliot Hentov, PhD, London (44) 207-176-7071; elliot.hentov@standardandpoors.com Benjamin J Young, London (44) 20-7176-3574; benjamin.young@standardandpoors.com Ravi Bhatia, London (44) 20-7176-7113; ravi.bhatia@standardandpoors.com Karen Vartapetov, Moscow (7) 495-783-4018; karen.vartapetov@standardandpoors.com Liliana Negrila, Frankfurt +49 69 33 999-248; liliana.negrila@standardandpoors.com Alexander Petrov, London (207)1767115; alexander.petrov@standardandpoors.com

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MENA Sovereign Debt Report 2014: Commercial Borrowing To Increase To $56 Billion
Standard & Poor's Ratings Services projects that the 12 sovereigns that it rates in the Middle East and North Africa (MENA; see table 5) will borrow an equivalent of $56 billion from long-term commercial sources in 2014. This would be a 27% increase in long-term commercial debt issuance compared with 2013. About 67%, or $38 billion of the sovereigns' gross commercial borrowing will be to refinance maturing long-term commercial debt, compared with $25 billion in 2013, resulting in an estimated net commercial borrowing of $18 billion (see tables 1-3 and chart 1). Consequently, we project that rated MENA sovereigns' commercial debt stock will reach an equivalent of $462 billion by the end of 2014, up by $17 billion, or 4% from 2013. Adding in bilateral and multilateral debt, the total stock will reach $504 billion, a year-on-year increase of $15 billion, or 3%. We expect that outstanding short-term commercial debt will reach $145 billion at year-end 2014 (see table 1). The share of noncommercial official debt (bilateral and multilateral) in total sovereign debt is set to fall to 8.7% of total debt as of year-end 2014, from 9.5% in 2013. Overview We forecast a $12 billion, or 27% increase, in rated Middle East and North African (MENA) sovereign long-term borrowing from commercial sources in 2014, compared with actual borrowing in 2013. We expect Egypt, Morocco, and Lebanon to be the biggest issuers this year, while sovereign capital market activity in the Gulf Cooperation Council is likely to remain muted. Absolute debt levels continue to increase. By year-end 2014, we project that total outstanding sovereign commercial debt in the MENA region will have risen by $17 billion to $462 billion in nominal terms since last year.

We project that during 2014 the share of commercial sovereign debt rated 'AA' or 'A' will stand at about 14% of total commercial debt (see table 3 and chart 2). At the same time, the share of debt rated 'BBB' and below is set to account for 86%. According to our calculations, Jordan will face the highest debt rollover ratio (including short-term debt) among rated MENA sovereigns, reaching 49% of total debt, followed by Egypt (42%; see table 4). The debt-rollover ratios for infrequent issuers with small but lumpy debt obligations can be very low if little or no debt matures in a given year and if they do not have a significant amount of short-term debt. The rollover ratios of sovereigns with a higher proportion of official debt tend to be lower, because official debt typically has longer maturities than commercial debt. These estimates account for the 12 MENA sovereigns rated by Standard & Poor's (see table 5). Our estimates focus on debt issued by a central government in its own name and exclude local government and social security debt, as well as debt issued by other public bodies and government-guaranteed obligations. In terms of commercial debt instruments, our estimates for long-term borrowing include bonds with maturities of more than one year issued either on publicly listed markets or sold as private placements, as well as commercial bank loans.

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MENA Sovereign Debt Report 2014: Commercial Borrowing To Increase To $56 Billion

In addition to commercial debt, some of the estimates we use in this study include official bilateral and multilateral debt. We do not include government debt that may be issued by central banks for monetary policy purposes in some countries. All reported forecast figures are our own estimates and do not necessarily reflect the issuers' projections. Our estimates are informed by our expectations regarding central government deficits, our assessment of governments' potential extra-budgetary funding needs, and our estimates of debt maturities. Estimates that we express in dollars are subject to exchange rate variations. We expect three sovereigns with large fiscal deficits--Egypt, Morocco, and Lebanon--to issue the lion's share of government debt in the region in 2014, totaling $44 billion, or just over three-quarters of the total (see chart 1 and table 2; see also our "Sovereign Risk Indicators," published Dec. 13, 2013, on RatingsDirect). Of these three sovereigns, Egypt has a substantial amount of short-term debt (45% of the total) as does Jordan (30%), partly explaining their very high rollover ratios. We expect that Jordan will remain the MENA sovereign with the largest share of bilateral and multilateral debt in 2014 (26% of the total), followed by Morocco, with 17%. Only 7% of Egypt's 2014 total debt is to bilateral and multilateral lenders. This is because, although GCC donor support represented about 6% of Egypt's 2013 GDP, the majority related to cash and oil and oil products, while only a small portion was interest-free loans. Most of Egypt's government financing takes place in the local market with state-owned banks and the central bank of Egypt. In general, sovereign debt capital markets are relatively underdeveloped in the GCC and we do not expect Abu Dhabi, Kuwait, Qatar, or Saudi Arabia to issue long-term debt in 2014. In our view, financing these states' large investment programs could result in weaker government balances, but as long as oil prices remain high, we expect them to continue to post fiscal surpluses. We expect the majority of borrowing related to these investment programs to take place at the government-related entity level rather than through central government borrowing. However, we do expect that the smaller GCC states of Oman and Bahrain, along with the smaller emirates of Ras Al Khaimah and Sharjah, will issue commercial debt in the market. Ras Al Khaimah issued a $500 million bond under its $2 billion sukuk issuance program (RAK Capital) in 2013. We expect that it will issue again in 2014 in order to refinance about $0.4 billion in debt coming due rather than running down its cash balances. We also expect Sharjah will issue around $0.5 billion this year as it continues to invest in capital projects. We have also penciled in an inaugural issuance of treasury bills by the emirate of Abu Dhabi in 2014, expecting around $1 billion in total. Nevertheless, given its low sovereign debt stock, Abu Dhabi's roll-over rate as a percentage of GDP remains very low at below 1% (see chart 3). However, the final decision by the emirate remains subject to Executive Council approval.
Table 1

MENA Sovereign Commercial Issuance And Debt

2013e (Bil. $) Gross long-term commercial borrowing Of which amortization of maturing long-term debt Of which net long-term commercial borrowing Total commercial debt stock (year end) Of which short-term debt Of which debt with original maturity greater than one year 44 25 19 445 136 309 56 38 18 462 145 317 2014f

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MENA Sovereign Debt Report 2014: Commercial Borrowing To Increase To $56 Billion

Table 1

MENA Sovereign Commercial Issuance And Debt (cont.)

(% of GDP) Gross long-term commercial borrowing (% GDP) Of which amortization of maturing long-term debt (% GDP) Of which net long-term commercial borrowing (% GDP) Total commecial debt stock (year end) (% GDP) Of which short-term debt (% GDP) Of which debt with original maturity greater than one year (% GDP) e--estimate. F--Forecast. 2.2 1.3 1.0 22.4 6.9 15.6 2.7 1.8 0.9 22.1 7.0 15.2

Chart 1

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MENA Sovereign Debt Report 2014: Commercial Borrowing To Increase To $56 Billion

Chart 2

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MENA Sovereign Debt Report 2014: Commercial Borrowing To Increase To $56 Billion

Chart 3

Table 2

MENA Gross Commercial Long-Term Borrowing

(Bil. $) Abu Dhabi Bahrain Egypt Jordan Kuwait Lebanon Morocco Oman Qatar Ras Al Khaimah Saudi Arabia Sharjah 2013e 0.0 2.8 13.4 1.1 0.0 13.9 11.6 0.0 0.0 0.5 0.0 0.4 2014f Share of 2014 total borrowing (%) 0.0 3.4 17.3 6.6 0.0 13.1 13.2 1.3 0.0 0.4 0.0 0.5 0.0 6.1 31.1 11.8 0.0 23.4 23.6 2.4 0.0 0.7 0.0 0.9

Breakdown by foreign currency rating category AA A 0.0 1.0 0.0 2.2 0.0 4.0

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MENA Sovereign Debt Report 2014: Commercial Borrowing To Increase To $56 Billion

Table 2

MENA Gross Commercial Long-Term Borrowing (cont.)

BBB BB B Total MENA e--Estimated. F--Forecast. 14.4 1.1 27.3 43.8 16.6 6.6 30.4 55.8 29.7 11.8 54.5 100.0

Table 3

MENA Total Commercial Debt at Year-End (Long- and Short-Term)

(Bil. $) Abu Dhabi Bahrain Egypt Jordan Kuwait Lebanon Morocco Oman Qatar Ras Al Khaimah Saudi Arabia Sharjah 2013e 5.9 13.9 227.0 17.7 5.6 59.5 54.5 3.0 34.9 1.8 20.1 1.5 2014f Share of 2014 total commercial debt (%) 5.1 16.4 236.7 18.3 5.6 64.1 62.5 3.5 30.4 1.8 15.9 1.7 1.1 3.5 51.2 4.0 1.2 13.9 13.5 0.8 6.6 0.4 3.4 0.4

Breakdown by foreign currency rating category AA A BBB BB B Total MENA e--Estimated. F--Forecast. 66.4 6.2 68.4 17.7 286.5 445.2 57.1 7.0 78.9 18.3 300.9 462.1 12.4 1.5 17.1 4.0 65.1 100.0

Table 4

MENA Central Government Rollover Ratios And Debt Structure (% of Total Debt, Including Bi-/Multilateral)
--2013e---2014f--

Foreign Long-term Rollover Commercial Short-term currency fixed-rate Bi-/Multilateral ratio (% Rollover Bi-/Multilateral debt (% of debt (% of debt (% debt (% of Inflation-indexed debt (% of of total ratio (% debt (% of total) total) of total) total debt) debt (% of total) total) debt) of GDP) total) Abu Dhabi Bahrain Egypt Jordan Kuwait Lebanon 100 95.1 90.9 76.4 100 93.7 0 22.5 44.7 30.0 0 2.2 94.9 49.2 17.5 48.4 100 41.1 44.0 77.5 44.5 13.7 100 97.3 0 0 0 0 0 0 0 4.9 9.1 23.6 0 6.3 36.7 24.8 41.5 48.8 0 14.4 0.7 11.9 40.1 33.4 0 21.0 0 4.2 7.2 26.3 0 5.9

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MENA Sovereign Debt Report 2014: Commercial Borrowing To Increase To $56 Billion

Table 4

MENA Central Government Rollover Ratios And Debt Structure (% of Total Debt, Including Bi-/Multilateral) (cont.)
Morocco Oman Qatar Ras Al Khaimah Saudi Arabia Sharjah AA' category A' category BBB' category BB' category B' category 82.6 100 100 100 100 100 100 100 84.9 76.4 91.5 16.1 0 5.7 0 0 0 3.0 0 17.3 30.0 36.1 23.3 27.3 58.6 97.7 0 25.7 47.6 47.0 28.0 48.4 22.3 75.8 97.8 100 97.7 100 6.8 47.6 47.0 24.2 37.0 20.5 0 0 0 2.3 0 0 0 0 0 0 0 17.4 0 0 0 0 0 0 0 15.1 23.6 8.5 23.5 26.1 21.1 24.3 26.2 12.9 18.5 9.2 16.7 27.9 39.4 16.0 1.0 3.0 5.3 0.6 1.0 0.7 0.5 10.4 19.1 38.8 16.8 0 0 0 0 0 0 0 14.5 26.3 6.9

e--Estimate. F--Forecast.

Table 5

MENA Sovereign Ratings

Local currency ratings Foreign currency ratings Abu Dhabi (Emirate of) Bahrain (Kingdom of) Egypt (Arab republic of) Jordan (Hashemite Kingdom of) Kuwait (State of) Lebanon (Republic of) Morocco (Kingdom of) Oman (Sultanate of) Qatar (State of) Ras Al Khaimah (Emirate of) Saudi Arabia (Kingdom of) Emirate of Sharjah Ratings are as of Feb. 27, 2014. AA/Stable/A-1+ BBB/Stable/A-2 B-/Stable/B BB-/Negative/B AA/Stable/A-1+ B-/Negative/B BBB-/Negative/A-3 A/Stable/A-1 AA/Stable/A-1+ A/Stable/A-1 AA-/Positive/A-1+ A/Stable/A-1 AA/Stable/A-1+ BBB/Stable/A-2 B-/Stable/B BB-/Negative/B AA/Stable/A-1+ B-/Negative/B BBB-/Negative/A-3 A/Stable/A-1 AA/Stable/A-1+ A/Stable/A-1 AA-/Positive/A-1+ A/Stable/A-1

Related Research
Global Sovereign Debt Report 2014: Borrowing To Increase By 2.7% To $7.1 Trillion, Feb. 27, 2014 Diverging Fortunes Prevail As Stability Eludes Some MENA Sovereigns, Dec. 17, 2013 Global Sovereign Credit Trends: Downgrades Are Likely To Outnumber Upgrades Again In 2014, Dec. 17, 2013 Sovereign Risk Indicators, Dec. 13, 2013 (Interactive version also available at http://www.spratings.com/sri )

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MENA Sovereign Debt Report 2014: Commercial Borrowing To Increase To $56 Billion

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