Kuwait: January 29, 2019
The following is an exclusive Arab Times interview with Rani Selwanes, Managing Director – Investment Banking
Arab Times: Tell us about the local market conditions of the bonds issued in Kuwaiti Dinars?
Rani Selwanes: The local debt capital markets have seen sporadic growth in terms of executed issuances over the past 10 years, with the majority of issuances coming from Government and Financial Institutions (approximately 84%). Since 2009, Kuwaiti debt capital market issuances have totaled approximately $23.9bn with only around $4.2bn being issued in Kuwaiti Dinars. The KD market is significantly smaller than the global US$ market and therefore the size of KD-denominated issuances do not exceed an issuance size of KD150mn per issuance. KD issuances also lack presence in a secondary market, ultimately forcing investors to hold securities until their respective maturity and therefore hindering the prospects of executing issuances with longer tenors. With that said, local issuers continue to consider the KD market as a viable alternative source of fund-ing due to their flexibility, covenant-light nature, the elimination of costly hedging fees and the diversity they bring to an Issuer’s funding sources. During 2018, the local debt capital market witnessed a 100% increase in total debt raised, a growth trend that is likely to continue into the future as debt capital market pricing becomes more competitive and converges with the rising interest rates offered by other financing sources.
AT: What are your expectations for the issue of corporate bonds in 2019, especially against the back-ground of refinancing requirements for companies and banks and to benefit from relatively low interest rates?
Selwanes: There is a promising pipeline of potential issuances planned for 2019 with the possibility of some debut issuers entering the market as well, which will prove to be a positive contributor to the further development of the local debt capital market. A combination of Quasi-Sovereign and corporate issuers will likely tap the local and global debt capital markets through both conventional and Shariah-compliant issuance structures. Given the uncertainty in global and local markets, potential issuers will be looking to secure long term funding with flexible terms, which is one of the many advantages that debt issuances can provide.
Last year, the market was anticipating another Sovereign issuance by the State of Kuwait, in which corporates would then subsequently issue on the back of, as was the case in 2017. The significance of Sovereign debt goes beyond the management of the nation’s fiscal deficits by establishing a benchmark for the pricing of Kuwaiti credit and enhancing its pro-file internationally. The absence of regular Sovereign issuances across the yield curve can potentially deter issuers from tapping the debt capital markets. The Kuwaiti economy and prospective Kuwaiti debt issuers can benefit greatly from consistent government debt issuances and the mar-ket eagerly looks forward to seeing a revision of existing laws that currently limit the ability of the State from doing so.