Kuwait postpones planned $10bn bond issue until 2017

Kuwait has delayed a sovereign bond issue of up to $10bn until next year after deciding it is in no rush to raise funds overseas, bankers familiar with Kuwaiti debt policy said.

Finance Minister Anas al-Saleh said in July the government planned to sell as much as $10bn of U.S. dollar-denominated conventional and Islamic bonds in international markets to help plug its budget deficit for the current fiscal year, which will end on March 31.

Officials subsequently said they were looking at a window of September or possibly October for the issue.

But the government has still not sent banks a request for proposals to arrange the issue, while the sale still needs official approval by the Ministry of Finance, said one of the bankers. This means the deal will definitely take place in 2017, he added.

“The government has not mandated banks on the bond, which would suggest that they were targeting a later release post-the Saudi Arabia one,” said Dima Jardaneh, head of regional economic research at Standard Chartered. This implies the first quarter of 2017 is a likely time period for the issue, she said.

Kuwait’s Ministry of Finance did not respond to requests for comment.

Bankers said Kuwait may have been encouraged to delay its issue by the approach of a mammoth bond sale by Saudi Arabia, which is scrambling to finance its own budget deficit. The Saudi issue, expected to be around $10bn to $15bn, is now anticipated to come in late October.

If Kuwait had issued before Saudi Arabia, demand could have been limited by investors holding back funds for the Saudi sale. Now that the Saudi sale is occurring so late in the year, Kuwait may not have time to issue before financial market participants start going on holiday in late December.

Kuwait’s window of opportunity this year has been shrunk further by expectations for U.S. monetary policy: 14 of 15 primary dealers polled by Reuters forecast an interest rate hike at the U.S. central bank’s mid-December meeting.

But bankers said they believed the main reason for the delay was Kuwait’s financial position. Although its state budget has been pushed into the red by low oil prices, like Saudi Arabia’s, Kuwait’s finances are much stronger and its need to raise funds is not as urgent as Riyadh’s.

Compared to Saudi Arabia, Kuwait “has much more room to be flexible and it has one of the lowest break-even points for oil prices to balance its budget”, said Faisal Hasan, head of investment research at Kuwait-based KAMCO Investment Co.

Before a transfer of money to its sovereign wealth fund, Kuwait posted a budget deficit of KD4.6bn ($15bn) last fiscal year, its first deficit in 17 years – but that was dwarfed by Saudi Arabia’s deficit of nearly $100bn last year.

“If you go down the list of Gulf Cooperation Council issuers, in terms of need and requirement to issue, at the top of the pile there’s Saudi Arabia. At the bottom of the pile you have Kuwait and Dubai,” said Abdul Kadir Hussain, head of fixed income asset management at Arqaam Capital in Dubai.

“Kuwait has the highest flexibility in the region in terms of timing. As a bond investor I’d expect them to come to the market when market conditions are good. Spreads now are attractive but not outright cheap, so I’m not surprised they’d delay the issuance.”