Amid rising interest rates, Middle East sustainable bond issuance drop in 9M 2024

Sustainable bond issuance across the Middle East declined 18% y-o-y to USD 16.7 bn in 9M 2024, according to an S&P Global report (pdf). The market’s cooling reflects a normalization following COP28’s momentum in late 2023, while other factors such as inflation, interest rates, and economic growth all impact demand for the notes. Meanwhile, funding and regulation can also be affected by “transparency and disclosure within ESG reporting [which] are in the early stages of development.”

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The Middle East’s sustainable bond issuances accounted for 2.2% of global sustainable bond issuance in 9M 2024, down from 2.6% during the same period in 2023.

Although issuances have slowed, sustainable bonds account for a larger share of the region’s bond market than the global average. In the Middle East, sustainable bond issuances account for 15-20% of total bond issuances (excluding sovereigns and private placements), coming in above the 12-14% global average.

Sustainable sukuk issuances accounted for 35-40% of all issuances in the region so far this year, up from 25-30% in 2023. Total sustainable sukuk issuances in the region remained basically unchanged at USD 6.1 bn in 9M 2024, in the face of a global 11% y-o-y decline to USD 7.1 bn. Saudi Arabia dethroned the UAE as the largest issuer of this type of issuances in 9M this year, compared to the same period in 2023.

Saudi Arabia and the UAE are leading the market, accounting for 60% of sustainable bond issuances in the region, with Qatar also making strides this year, including recording the region’s largest issuance in 2024 so far with the sale of a USD 1.5 bn sovereign green bond sale in 2Q 2024.

Financial institutions are the most prevalent issuer in the region, while issuances by state-owned corporates are down 45% in 9M 2024 on an annual basis. “In the UAE, the financial sector has pledged to mobilize AED 1 tn (USD 272 bn) in sustainable finance by 2030,” the report says.

The implementation of net-zero policies could drive more issuances: Stakeholders will need to move swiftly towards net-zero policies, along with a stronger focus on sustainability strategies, as well as new regulations for sustainable bond issuances to gain better traction.

The composition of sustainable bond issuances is changing: Whereas sustainable bond issuances in 2023 were primarily green bonds, this year saw growth in “sustainability issuances (including funding social projects),” the report says. The shift is largely driven by financial institutions, which are incorporating social elements into their projects to align with broader sector objectives. Common social initiatives include improving access to essential services, supporting affordable housing, and creating jobs through investments in SMEs.

Globally, it’s a bit of a different picture: Although green bonds continued to be a fixture of the region’s debt market “given the exposure to hydrocarbons,” they account for a far smaller share of sustainable bond issuances this year than the global average. On a global scale, green bonds still make up around 60% of sustainable bonds.

MARKETS THIS MORNING-

The Shanghai Composite, Hang Seng, and ASX 200 are all up in early trading this morning, boosted by yet another record close for the Dow yesterday. Only the Nikkei (-0.5%) is bucking the trend.

Futures suggest major Wall Street and European benchmarks could see a bit of selling pressure at the opening bell later today.

THE CLOSING BELL: TADAWUL-

The TASI rose 0.3% yesterday on turnover of SAR 7.3 bn. The index is up 0.6% YTD.

In the green: EPCCO (+10.0%), A. Othaim Market (+8.5%) and East Pipes (+6.0%).

In the red: Al Baha (-9.4%), Alamar (-2.6%) and Almarai (-2.6%).

THE CLOSING BELL: NOMU-

The NomuC rose 0.2% yesterday on turnover of SAR 78.8 mn. The index is up 5.9% YTD.

In the green: First Avenue (+30.0%), Burgerizzr (+15.3%) and NGDC (+10.4%).

In the red: Ladun (-6.4%), Al Rasheed Industrial (-6.1%) and Al Muneef (-4.6%)

CORPORATE ACTIONS-

Telecom giant STC’s general assembly will vote on a new three-year dividend policy on Wednesday, 6 November, according to a statement (pdf). The policy, effective from 4Q 2024 to 3Q 2027, would guarantee a fixed quarterly dividend of SAR 0.55 per share, up from its current SAR 0.4 per share, according to historical data (pdf). Additional dividends may be considered based on the company’s financial position, strategic investments, and capital needs, subject to board and shareholder approval. The policy may change if there are significant shifts in strategy, regulatory requirements, or banking commitments.