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The government’s funding needs for strategic growth plans are expected to fuel growth in the country’s debt capital market in the medium term, attracting interest from local and international investors, Fitch Ratings said. “We expect Saudi DCM [debt capital market] to continue developing in line with the Saudi Vision 2030, supported by the country’s funding diversification plans and capital market development initiatives,” said Global Head of Islamic Finance at Fitch Ratings, Bashar Al Natoor.
Saudi Arabia’s debt capital market is expected to hit USD 500 bn in the medium term, after ending 2023 USD 360 bn, rising 14.5% y-o-y.
What’s with the strong appetite? Outstanding Fitch-rated sukuk issued by the government and corporates totalled USD 50 bn by the end of 2023, with 97% of that paper carrying an investment-grade rating, said Al Natoor, adding that all issuers boasted stable outlooks.
Banks will continue to rely on client deposits as their main source of funding, while diversifying through sukuk and bond issuances, the note reads.
SOUND SMART- Corporates are expected to issue more debt in the medium term, ultimately leading to less crowding out of banking funds for individual borrowers.
Leaders in global sukuk: Saudi Arabia was the second-largest sukuk issuer globally after Malaysia in 2023, with 27% of the total FCY sukuk market. Saudi Arabia also contributed 69% of the total GCC sukuk market.
Oil prices + monetary environment: The ratings agency expects oil prices to hit USD 80 / barrel by the end of this year before sliding to USD 70 by the end of 2025, while it forecasts Fed rates to settle at 4.75% by the end of 2024 and 3.5% by the end of 2025.
