S&P predicts substantial expansion of Saudi’s debt capital market

Spurred by foreign currency issuance, local currency debt market growth
S&P predicts substantial expansion of Saudi’s debt capital market
Saudi debt market (Image source: Saudi Press Agency)

The development of Saudi Arabia’s capital debt markets will likely play an important role in facilitating the realization of Vision 2030, according to a new report from credit rating agency Standard & Poor’s (S&P).

 A robust and high-quality local debt market is key to developing and transforming the economy and could contribute to the funding needs arising from large Vision 2030 projects.

Read more: Saudi dominates $26.9 bn MENA debt market in Q1

“We expect foreign currency issuance in international markets and local currency debt market growth to spur substantial expansion of the Saudi debt capital market. As this market evolves, government-related entities, major financial institutions, and key blue chip corporates will likely dominate initially, with lower credit quality companies following suit,” said S&P.

“In our view, the evolution of our ratings will resemble that in some developed markets–where entities with the highest credit quality access the public debt market first, and entities further down the credit spectrum follow although likely at a faster pace in Saudi Arabia’s case,” the agency added.

The gradual emergence of a corporate debt market has seen some leading government-related entities (GREs) issuing bonds, a trend that is likely to continue in the medium term. 

“We believe foreign currency issuance in international markets will play a vital role in injecting institutional funds into key projects. Yet, the local debt market will also be crucial to meet the increasing funding needs for conventional bonds and sukuks that arise from Vision 2030,” noted the agency.

Additionally, S&P said it expected Saudi Arabia’s flagship companies to play a leading role in the development of the country’s local currency debt market and to tap into it before mid- and small-cap issuers. 

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