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Saudi Arabia, the United Arab Emirates, Bahrain and Egypt cut
diplomatic and transport ties with Qatar last year, accusing it
of backing terrorism, a charge which Doha denies.
The move disrupted Qatar’s imports and led to the withdrawal of
billions of dollars from Qatari banks by depositors from the
four states, hurting the economy.
But the world’s top exporter of liquefied natural gas developed
new trade routes and used tens of billions of dollars from its
sovereign wealth fund, estimated to have about $320 billion of
assets, to protect its banks.
Rated AA-(minus) by S&P – three notches higher than Saudi Arabia
– Qatar in April demonstrated that it still had easy access to
international capital markets, issuing a jumbo $12 billion bond
which received orders estimated in excess of $52 billion.
“Diplomatic tensions should continue to pressure Qatar's
economic, fiscal, and external metrics, especially if the
boycott is tightened or prolonged,” the agency said.
It added that made Qatar the credit with the highest downgrade
risk across all markets.
ISLAMIC BONDS
According to Mohamed Damak, global head of Islamic finance at
S&P, the Qatar boycott and other geopolitical risks have also
dampened investor appetite for sukuk, or Islamic bonds, in the
whole Gulf Cooperation Council (GCC) region over the last year.
“It started with the boycott of Qatar...which we think weakened
investors’ view of the cohesiveness of the GCC countries as a
block,” he said in a separate note.
“The shifts in Saudi Arabia’s power structures and societal
norms have also attracted a lot of attention from investors.”
Despite Qatar's successful conventional bond issue, a look at
the volume of sukuk issued by the state suggests its ability to
fund itself through such instruments has been hampered by the
rift.
Sukuk sales in both local and foreign currency, amounted to $5.5
billion in 2017. Volumes have gone down by over 50 percent to
$2.6 billion so far this year, according to S&P.
The boycott means that Qatari issuers can no longer rely on
demand from regional Islamic investors and banks, which has
traditionally been boosted by institutions in need of high-grade
sharia-compliant bonds to meet liquidity standards.
(Reporting by Davide Barbuscia; Editing by Kirsten Donovan)
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