Gulf Co-operation Council issuers have a history of printing statement trades in the primary bond market, and the conflict with Iran presents another opportunity for a borrower to show that, despite the war, the Gulf’s status as the cream of emerging market debt is well deserved.
Public bond issuance is paused for GCC issuers until the war between the US, Israel and Iran ends.
The moment of reopening will be the perfect opportunity for a Gulf issuer to show the region's strength in the dollar debt market, and that it is different from the rest of EM.
Gulf borrowers have form in this respect: think the Public Investment Fund’s spectacular 100 year bond in late 2022, a time when fixed income of all kinds, not just EM, was in meltdown.
Or consider of the monster deals done by Saudi Arabia and Qatar, among the largest deals in EM history. Or the ultra tight and record breaking spreads achieved by Qatar and Abu Dhabi in the last year.
Issuers from the Gulf like making a statement in the bond market, and the war is not going to change the region's status as a highly developed, wealthy and attractive place for foreigners to live and work, nor cause it to lose its long list of high quality issuers.
This would be the perfect time to make that primary market statement.
It's not just about demonstrating market access. A blockbuster trade following the most disruptive geopolitical event in the GCC since the region starting accessing overseas debt capital markets would send a signal that the Gulf is not really EM after all, or is at least very different to the rest of it.
That is already official in some countries. Kuwait and Qatar are no longer part of JP Morgan’s Emerging Market Bond Index and the United Arab Emirates is in the process of leaving.
Other parts of the GCC remain in EM indices and so are de jure still EM, but this is a chance to show they are de facto not, at least in the debt markets.
There are plenty of candidates to do it, a plethora of sovereigns, oil companies and sovereign wealth funds with strong credit ratings and a long standing presence in capital markets.
It would not need to be a record breaker in spread or size. Spreads have widened since the war started, so a fresh record in that sense is unlikely. A giant $10bn-plus piece of funding would not be necessary or appealing, given it would come at a greater cost than the jumbo deals done in times of low interest rates.
It could just be a trade done in reasonable size with limited to no new issue premium, something GCC issuers have got used to in the last few years.
Such a deal would show that, despite the attacks from Iran, not much has changed for the Gulf in the bond market and that its status as the gold standard in EM debt issuance is unshakeable.