The GCC region appears to still be doing a good job attracting investors to its bonds and sukuk market. During a panel at Arqaam Capital’s MENA Investor Conference last week in Abu Dhabi, analysts talked through the different drivers buoying investor appetite for the GCC debt market despite global market jitters, risks that could impact the market — specifically that of sukuk issuances — and what issuers need to do in times of uncertainty.

“The GCC is the only burgeoning asset class that is dramatically increasing in size,” Fady Gendy, executive director and senior portfolio manager at Arqaam Capital said at the panel, comparing it to Asia, which also benefits from low volatility but is shrinking in size, and Central Eastern Europe, which has low yields. A deep local investor base helps sustain this low volatility, Gendy said, while strong sovereign support — which is not as evident in other emerging markets — also helps boost investor confidence, Jad Raouda, head of emerging markets fixed income sales at Arqaam Capital, added.

The outlook for regional issuances in the near-term is positive, with Gendy expecting significant issuance from Saudi Arabia and Abu Dhabi. Gendy identified Abu Dhabi as his top pick for a portfolio, and is driven by capex and opportunistic circumstances. “While Abu Dhabi sovereign issuances trade tight at a very minimal spread of around 20 basis points over US Treasuries, you get a good pick-up if you invest in some of the Abu Dhabi government-related entities like Adnoc Murban, Masdar, Mubadala, ADQ, etc,” he added.

So is it a good time for issuers to tap debt markets? Omar Musharaf, head of debt solutions and debt capital markets, at Arqaam, says it is better to lock in current rates and be proactive rather than wait amid uncertainty. “It gives you financial stability and minimizes risk in terms of volatility,” Musharaf, adding that whenever possible, issuers should extend tenors. Issuers seem to be taking that advice, with lots of activity in debt markets seen in the first few months of the year.

What types of debt are they looking at? Sukuk has been a popular choice for much of this year. Earlier this month, Sobha Realty closed a Reg-S compliant USD 500 mn sukuk, while Sharjah Islamic Bank was sounding out investors for an AT1 sukuk issuance. Just last month, Dubai-based luxury developer Omniyat closed its maiden USD 500 mn green sukuk issuance and Adnoc and DP World both closed USD 1.5 bn sukuk. Meanwhile, Aldar Investment Properties tapped global markets with a USD 500 mn 10-year green sukuk back in March, while Damac returned in February with its first benchmark issuance in a year and a half — a USD 750 mn 3.5-year sukuk. ADQ also took USD 2 bn bonds to market, while state-owned renewables player Masdar closed a USD 1 bn green issuance.

Local currency issuances have also been gaining popularity, with Musharaf noting that AED-denominated issuances are slowly gaining ground among GREs, though liquidity remains somewhat fragmented. “If your intention for issuance is liquidity, visibility, or if you need to raise more than USD 500 mn, then USD is still the default,” Musharaf went on to add.

REMEMBER- The UAE is expected to issue some USD 8 bn in AED-denominated debt in 2025 to help support “the building of a domestic yield curve,” S&P Global Ratings said previously. Individual emirates and the UAE federal government are expected to issue around USD 18 bn in total debt this year, down from USD 19 bn in 2024.

On the sukuk front, upcoming regulations could shake the market. The new Sharia Standard 62 by the Accounting and Auditing Organization for Islamic Institutions (AAOIFI) — expected to take shape this year, and which would shift the focus from contractual obligations to underlying assets — could introduce additional risks for investors. Not only will it be more costly, it will also be more complex for issuers, global head of Islamic finance at S&P global rating Mohamed Damak said.

“Today, international investors participate without needing to fully understand every technical detail. This wasn't the case 15 years ago,” Raouda said, adding that “the simplification of structures has made sukuk more accessible, and we must be cautious not to lose that simplicity as regulatory or structural changes come in.”

ESG bonds will also continue to gain momentum as oil-exporting countries look to diversify energy sources and reduce their carbon footprint, Damak said, adding that sustainability sukuk in particular could reach USD 20-25 bn by 2028, up from USD 10-12 bn currently.

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