Saudi Arabia’s debt capital market grew 18 percent year-on-year to $407.7 billion outstanding during the first half of 2024, equally split between U.S. dollars and riyal issues. However, debt issuance will likely slow in the second half of 2024, stated Fitch Ratings in its latest release.
“Nearly all Fitch-rated Saudi sukuk are investment-grade. Government projects under Vision 2030, deficit funding, diversification, and regulatory reforms mean the Saudi sukuk and the bond market will likely cross $500 billion outstanding over the next couple of years,” said Bashar Al Natoor, global head of Islamic finance at Fitch Ratings.
Dollar debt issuance to continue in 2025
Debt issuance during the first half equaled 100 percent of 2023’s issuance. Nearly two-thirds of the issuance was in sukuk, and close to 10 percent of the dollar debt capital market outstanding was ESG debt. While not their main funding source, Saudi banks and corporations are increasingly diversifying into the debt capital market. However, Sharia requirements mean many Saudi banks and corporates can only issue sukuk, not bonds.
“Although the Saudi market is amongst the most developed in the Organisation of Islamic Cooperation (OIC), there is still room to improve compared to other G20 countries. We expect substantial dollar debt issuance to continue in 2025 as oil revenues moderate,” added Al Natoor.
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Foreign investor share grows
Foreign investors’ share of government local issuances grew to 7.2 percent of the investor base at the end of H1 of 2024 from 0.2 percent in 2022. This growth followed changes such as the inclusion of Saudi issuances in global bond indices and linkages with international central securities depositories – Euroclear and Clearstream. Local banks remain anchor investors, with over 75 percent share.
Saudi Arabia’s debt capital market, however, remains exposed to oil price and interest volatility, investors’ concerns over the scale and use of issuance, and geopolitical risks.
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