Fitch Ratings: Qatar’s DCM to remain stable amid debt repayment

Qatar’s debt capital market (DCM) is set to remain stable as the government continues to repay debt, Fitch Ratings predicts. Consequently, banks will keep issuing new debt to replace maturing liabilities and diversify funding sources.

By the end of the first half of 2024 (1H24), Qatar’s DCM totaled $130 billion, unchanged from 1H23. However, sukuk comprised 10 per cent, down from 13 per cent in 1H23. Notably, key developments this year include the issuance of the first sovereign green bond in the Gulf Cooperation Council (GCC) and Qatar’s first riyal-denominated corporate sukuk.

In comparison, Qatar ranks third in the GCC for DCM size, following Saudi Arabia and the UAE. Meanwhile, Qatari banks issue senior unsecured debt to extend maturity profiles, whereas corporate issuances remain limited.

The market is composed of 65 per cent US dollar-denominated debt and 30 per cent riyal-denominated debt. Debt maturities are set at 9.1 per cent for the second half of 2024 (2H24), 13.4 per cent in 2025, and 77.5 per cent in 2026 and beyond.

Although the regulator has made strides in developing Qatar’s DCM, challenges persist. For instance, the riyal-DCM market is still in its early stages, and banks continue to dominate the investor base. Furthermore, in June 2024, the Qatar Central Bank (QCB) unveiled its ESG and sustainability strategy to enhance sustainable finance and develop ESG sukuk. As of 1H24, Qatar’s ESG debt reached $3.8 billion, with 19.5 per cent in sukuk, appealing to shariah-compliant investors.

In addition, sukuk issuance soared by 122 per cent year-over-year (YoY) in 1H24 to $500 million, while bond issuance increased by 59 per cent YoY to $12.4 billion. Fitch rated $3.2 billion of Qatari sukuk as ‘A’. Recently, Fitch upgraded Qatar’s credit rating to ‘AA’ with a Stable Outlook, the highest in the GCC.

Furthermore, in 2023, the government repaid QAR 27 billion ($7.4 billion) in external debt. Debt-to-GDP is projected to fall to 48 per cent in 2024 and 46 per cent in 2025, down from 85 per cent in 2020.

Looking ahead, the government plans to repay $4.8 billion in 2024 maturities and refinance $2 billion due in 2025. Fitch expects a general government budget surplus of 8.6 per cent of GDP in 2024, slightly lower than the 9.3 per cent surplus in 2023.

Attribution: Fitch Ratings

Subediting: M. S. Salama