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The Kingdom tops the list of emerging market borrowers so far this year, marking the first time in 12 years for a country other than China to lead the pack, Bloomberg reports. Saudi sovereign and corporate bond issuances are up 8% YTD to over USD 33 bn, reflecting a “very healthy” appetite for Saudi debt, according to Union Bancaire Privee’s Managing Director Apostolos Bantis.
The government accounted for the lion’s share — or just over 50% — of Saudi’s total debt issuances this year as it looks to plug a USD 21 bn budget deficit to fund some USD 37 bn in domestic giga-projects, according to Bloomberg. The Kingdom’s foreign direct investment volumes have reportedly fallen below target in 1Q 2024, Bloomberg wrote. Throw in OPEC-mandated oil production cuts and the result has been a compression of the Kingdom’s revenues, prompting it to tap the debt markets for liquidity.
The proof is in the paper: The government sold USD 5 bn worth of FCY-denominated sukuk with three-, six-, and 10-year tranches, last month. It also raised USD 12 bn in an earlier USD-denominated sovereign bond sale back in January, marking Saudi’s largest issuance since 2017 when it sold USD 21.5 bn worth of bonds.
What the experts are saying: “It’s not a surprise that the Kingdom has become the largest EM bond issuer given its large funding needs for large infrastructure projects,” Bantis said. “Saudi cannot keep up the current bond issuance pace for too long as that would start to have an impact on its fundamentals and cost of funding.”
It’s been a good year for EM bonds: Total bond sales from emerging markets grew 28% y-o-y to a combined 3-year high of USD 291 bn, according to data. Yields on EM paper is currently at 266 basis points (bps) above US treasuries, which is below the five-year average of 336 bps, the business information service notes.
