Riyadh – Qatari debts have entered the era of “high cost of borrowing” and the stage of attracting premium price resulting from the political risk of Saudi Arabia severing ties with Qatar, according to financial analysts.
Qatar’s credit margins moved between 15 and 25 points compared to 8 to 10 basis points before the crisis and central banks around the world had stopped dealing with the Qatari Riyal.
Islamic Debt Markets’ expert Mohammed al-Khunaifer confirmed that Saudi Arabia’s boycott will directly affect several aspects primarily the Qatari bonds. He reiterated that Qatari debts entered the phase of high-costs loans.
According to his opinion, Khunaifer believes that although the sale of country’s sovereign debt operations was not huge, but they signals a sense of panic among traders who expect the worst.
Khunaifer told Asharq Al-Awsat that Qatar had one of the highest rankings in the world prior to the crisis. But on May 26, Moody’s downgraded Qatar’s credit rating by one notch, citing increasing external debt and uncertainty over the sustainability of the country’s growth model over the next few years.
The rating agency then downgraded Qatar’s long-term issuer and sovereign debt ratings to Aa3 from Aa2, but changed its outlook on the Middle Eastern nation to stable from negative, citing optimism around the implementation of fiscal and economic reforms.
Moody’s, however, said that the regional rift could have a negative impact on Qatar if it disrupts trade and capital flows.
Khunaifer pointed out that the worst of the possibilities that some Gulf market debt traders are considering revolves around the possibility of central and local banks claim to get rid of any exposure they have with Qatari banks. He warned that if this happened, the country’s debts will be sold in the secondary market.
The expert pointed out that sales of country debt operations suggest that investors began a stage of repricing the yield curve for Qatar’s debt. According to credit margins that we see on the ten year national bonds, due in 2026, the fixed income investors expect a decline in the near future in the credit rating of Qatar by 2 to 3 degrees.
Financial analyst Mohammed al-Ata told Asharq Al-Awsat newspaper that Saudi boycott of Qatar brought many financial and economic consequences, including Saudi Arabian Monetary Authority (SAMA) which ordered Saudi banks on Tuesday to stop dealing with their Qatari counterparts in Qatari riyals. He explained that this step will be followed by many others and will severely damage the Qatari riyal.
Ata explained that if other countries followed, Qatar will be deprived from many direct and indirect economic benefits of the cash flow between the Qatari banks and their Gulf counterparts.
Head of economic and financial studies in Shurooq Center in Jazan Abdul Rahman Baashen believes that the Qatari riyal might face a low exchange rate in comparison to primary notes. He added that other banks also ended their transactions with Qatar National Bank like Sri Lanka.