Kuwait's $9.9 billion plan adds to Arabian Gulf bond sale frenzy

Kuwait plans to raise as much as $9.9 billion from international debt markets to help plug its budget deficit as lower oil prices squeeze public finances.

The Opec member also plans to borrow as much as 2bn dinars ($6.6bn) from the domestic market, finance minister Anas Al-Saleh said in speech. The budget deficit is expected to widen to 9.5bn dinars in the 2016-2017 fiscal year, which began April 1, he said.

The plunge in oil prices has prompted a flurry of international bond sales from the six-nation GCC to finance widening deficits that the IMF says could reach $900bn by 2021. Qatar raised a record $9bn in May, following a $5bn sale by Abu Dhabi. Saudi Arabia, the biggest Arab economy, has hired JPMorgan Chase & Co, HSBC and Citigroup to raise at least $10bn, according to people familiar with the matter.

“Most of the available scenarios suggest that oil prices will remain, for the foreseeable future, lower than the levels required to attain a balanced budget,” Al-Saleh said. Britain’s decision to leave the European Union “has further exacerbated markets’ volatility and uncertainty around the growth of the global economy. This may result in the accumulation of fiscal deficits,” he said.

Kuwait is rated AA at S&P Global Ratings and Aa2 at Moody’s Investors Service, the third-highest investment grade.

“Kuwait has one of the highest credit ratings in the world and I expect its bond to be well received, albeit at a price,” Anita Yadav, head of fixed-income research at Emirates NBD, Dubai’s biggest bank, said by phone. “Kuwaiti officials may opt to avoid the summer months in order to tap into the European investor base, and therefore will likely come to the market either in late July or early September.”

Kuwait estimates expenditure for the 2016-17 fiscal year at 18.9bn dinars, the minister said, while revenue is expected to be at 10.4bn dinars during the same period. Non-oil revenue will make up 1.6bn dinars of the total, he said.

Kuwait posted a 5.5bn dinar deficit for the 2015-2016 fiscal year, Al-Saleh said, below the government’s earlier estimate of 8.2bn. The government hired consulting firm Oliver Wyman & Co to advise on a debt strategy, the minister said in an interview in May.

Britain’s vote may cause “some delays in GCC international issuances,” Carla Slim, an economist for Standard Chartered in Dubai, said in an email. “We still see appetite for GCC bonds in general.”


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