The Gulf’s Impaired Vision Correction

Gulf stock markets stumbled through May as attention turned to record debt-raising despite ratings downgrades with lower oil prices and rising budget deficits. GCC bond issuance and syndicated loans should each come to $50 billion this year, S&P estimates with Qatar already placing a $9 billion issue and Saudi Arabia interviewing underwriters for a reported $15 billion tap. The MSCI Saudi reading was down 5 percent despite the eventual prospect of an Aramco mega-offering as proposed under the “2030 Vision” prepared in tandem with management consultants. It foresees the private sector as the main economic driver, and aims to reduce youth unemployment to single digits and increase female participation. The minority stake state oil company sale would require decisive valuation and information for its vast holdings, with initial calculations in the trillions of dollars. The proceeds would go for economic diversification, as the main public pension fund also transforms for this purpose while traditional reserves, currently under $600 billion and losing $10 billion monthly, will continue to cover fiscal and import needs. The stock exchange has also engaged HSBC to prepare its own listing, a decade after Dubai completed an oversubscribed $400 million one. Prince Mohamed, in charge of the economy portfolio from the younger royal generation, also engineered the appointment of a new oil minister and central bank governor to promote the blueprint. The sovereign rating was bumped a notch but is still in the AA category enabling quick global syndication of a $10 billion credit in April. It decreased US Treasury assets to $120 billion last year as the 12th biggest owner, while Gulf countries control a combined $300 billion to recycle petrodollars and maintain the currency peg reiterated as sacrosanct.

 Local banks welcomed the external access with their liquidity squeeze as construction and supply firms run into trouble with the oil crash. The Binladen group shed one-quarter of its 200,000 workers on project pullback and steelmakers announced $2 billion in debt restructurings. The $8 billion Ahab workout from 2009 continued to drag on with the latest setbacks, as a court tribunal will process creditor claims that could only get 25 cents to the dollar, although the executive in charge still faces cross-border seizure actions. The UAE received its own non-payment blow when Malaysia’s 1MDB reneged on $1 billion owed out of a $3.5 billion guarantee total. The sovereign wealth fund absorbed mark-to-market losses as the bond price tumbled to 85, and CDS quotes for both the countries jumped in response. The default occurred at the same time the Emirates pledged another $4 billion in aid to Egypt, which replenished reserves to $18 billion and preempted renewed IMF program talk. However Cairo must repay $2 billion to Qatar and the Paris Club in the coming months, as dollars remain short despite the recent devaluation. According to reports parallel market operators have gone into Libya for even higher margins, with informal rates 3 times the official 1.4/dollar one. The central bank, which has just been recognized by a precarious unity government, bans commercial banks from dealing as it tries to preserve $70 billion in reserves amid the bleak civil war and looting vision.