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Saudi’s debt capital market grew 18% y-o-y to USD 407.7 bn in 1H 2024, Fitch Ratings said in a report. The issuances were evenly split between USD and SAR-denominated instruments, with sukuk comprising nearly two-thirds of the total. The ratings agency noted that a notable portion of this debt was tied to ESG.
The Kingdom had a blockbuster 1H: Saudi was the biggest USD-denominated debt issuer among emerging markets (excluding China) and was the largest in terms of global sukuk issuances during 1H 2024, according to Fitch.
Foreign ownership of local government bonds rose to 7.2% by mid-2024, driven by local issuances being included in global bond indices and stronger links with international securities depositories. This marks a 35% increase from the 0.2% foreign ownership rate in 2022.
There’s more to come… “Government projects under Vision 2030, deficit funding, diversification, and regulatory reforms are set to push Saudi Arabia’s sukuk and bond market past USD 500 bn in the coming years,” said Bashar Al Natoor, Global Head of Islamic Finance at Fitch Ratings. With oil revenues expected to “moderate,” Fitch sees Saudi tapping debt markets with “substantial” USD-denominated issuances to finance its diversification plans.
…but not without catching our breath: However, Saudi is expected to issue less debt in 2H 2024, partly because Saudi Aramco is paying out larger dividends, curbing the government’s need to borrow more money, Fitch says.
IN CONTEXT- The government counts on Aramco dividends to bridge budget deficit and to finance its diversification away from oil, with oil accounting for some 67% of government revenues at present. The company’s dividends pushed SAMA’s foreign reserves to an 18-month high of SAR 1.67 tn in June. Saudi Arabia’s government owns 97% of Aramco. Jadwa Investment said last month that greater returns from Aramco on the back of more performance-linked dividends and a boost in dividends per share will keep state hydrocarbon revenues this year on par with last year’s despite a downtick in export volumes.
Risks: The local debt market is vulnerable to swings in oil prices, interest rate hikes, investor jitters over rising debt levels, and regional geopolitical tensions, Fitch said.
ALSO FROM DEBT MARKETS-
The Kingdom accounted for the lion’s share of sovereign sukuk issuances in the GCC during 1H 2024, making up some 37% of the USD 69.2 bn total, which was up 138% y-o-y, Zawya reports citing a report by credit ratings agency Moody’s. The government also issued USD 17 bn in longer-dated sukuks in 1H 2024 to refinance debts maturing in 2024, 2025, and 2026, with that trend expected to continue, Moody’s said.
