Citigroup Sees Asset Sales Boosting $47 Billion Gulf Debt Binge

(Bloomberg) -- Oil-rich Gulf nations may turn to asset sales to complement an almost $50 billion debt spree to support economies rocked by the coronavirus pandemic and the collapse in crude prices, according to Citigroup Inc.

Countries including Saudi Arabia and the United Arab Emirates have “really attractive” government-owned assets, which could be sold to the public or partnered with other investors, Atiq Rehman, head of Citigroup Inc.’s emerging-market cluster for Europe, the Middle East and Africa, said in an interview.

“There are opportunities obviously on that front,” he said. “There is also high investment-grade rating for their ability to raise substantial amount of international debt at very attractive prices. There is capacity to borrow more.”

Gulf governments are looking at ways to shore up their economies as the coronavirus pandemic and a historic crash in oil prices add to pressure on already strained finances. Unlike in Europe, most major entities in the region are still state owned. Saudi Arabia last year raised $29.4 billion by selling less than a 2% stake in the world’s biggest oil producer, Saudi Aramco.

More Deals

Borrowers in the Gulf Cooperation Council have raised $47 billion in bonds this year, with just over half of that coming from Saudi Arabia, Qatar and Abu Dhabi in the past month alone. Franklin Templeton estimates governments and companies in the region could raise $105 billion in bonds this year, topping last year’s $101 billion, the highest since Bloomberg began compiling the data in 2008.

More deals are in the works. Saudi Arabia, the region’s biggest economy, is leading the way with plans to borrow a record 220 billion riyals ($58 billion) this year. Saudi Aramco, is said to have hired advisers to review a potential multi-billion dollar stake sale in its pipeline business, following a similar move by government-backed Abu Dhabi National Oil Co., whose natural gas pipelines unit could be valued at $15 billion.

Citigroup has worked on some of the Gulf’s biggest deals this year, including Saudi Arabia’s and Abu Dhabi’s bond offerings. The bank is the region’s third top arranger of debt sales, according to data compiled by Bloomberg.

Citigroup Sees Asset Sales Boosting $47 Billion Gulf Debt Binge

Many Gulf companies have non-core business that could attract partners with technical expertise or capital, said Rehman, whose coverage includes the Middle East and North Africa, sub-Saharan Africa, Turkey, Russia, Ukraine and Kazakhstan.

“This frees up capital for you to focus on your core,” he said. “I think that kind of thing you will see happening more.”

Still, Gulf nations can take some comfort in the massive reserves being held by the region’s sovereign wealth funds, which can be used to support economies, Rehman said.

Middle Eastern wealth funds have built up assets of more than $2 trillion as a cushion for when oil runs out or revenues drop. These funds could see a decline by more than $300 million this year because of the market turmoil, according to the Institute of International Finance, the industry’s global association.

“Sovereigns in the region are in a strong position,” Rehman said, adding that the likes of Qatar, Kuwait, U.A.E. and Saudi Arabia still have relatively low debt levels. “This is a challenging situation, but they are very well positioned to see through this period of recovery.”

©2020 Bloomberg L.P.

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