Saudi Arabia's debt market ready for takeoff, says S&P

Saudi Arabia is developing its debt market to meet the increasing funding needs that come with its Vision 2030, according to S&P Global Ratings.


In line with its Vision 2030 programme, Saudi Arabia has taken significant initiatives to diversify its economy and reduce its oil dependency. The development of its financial sector is one of the key tenets of Vision 2030, it stated.


The kingdom aims to advance the capital market and attract private sector and foreign institutional investors to finance some of the country's key projects.


The evolution and development of the debt market - powered by foreign currency issuance in international markets and local currency debt market growth - will be key to meeting these increasing financing needs,  stated the top ratings agency in its "Saudi Arabia’s Debt Market: Ready For Takeoff," report.


The development of Saudi Arabia's capital markets will likely play an important role in facilitating the realization of Vision 2030. 


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, it stated.


S&P Global said over the past few years, the Capital Market Authority (CMA) and Saudi stock exchange Tadawul undertook several initiatives to develop the kingdom's capital markets. 


They simplified listing processes, invested heavily in market infrastructure, approved rules to facilitate foreign investors' access to Saudi capital markets, and implemented measures to strengthen corporate governance 

practices and further improve transparency. 


In 2019, Saudi stocks were included in the MSCI Emerging Markets Index as well as the relevant indices of FTSE Russell and S&P Dow Jones, further increasing the global visibility of Saudi equities.  

Given the significant economic transformation expectations and funding needs associated with Vision 2030, we expect Saudi debt market evolution to potentially outpace that seen in some other developed markets," remarked S&P Global Ratings credit analyst Timucin Engin. 


"Government-related entities, major financial institutions, and key blue chip corporates will initially lead the way," he added.


Tadawul is by far the largest equities market in the Middle East and North Africa by market capitalization and trading volumes.


The IPO of Saudi Aramco in 2019 was a milestone and since then several other Saudi entities had tapped into the equities market. 


As of June 15, 2023, the market capitalization of Tadawul All Shares Index has surged to over $2.9 trillion, up from around $420 billion at year-end 2015. 


"Even if we were to exclude the contribution from the market capitalization of Saudi Aramco, market capitalization has almost doubled since then," observed S&P Global Ratings credit analyst Dhruv Roy. 


“Given the sheer size and long-term nature of investments under Vision 2030, we do not believe that the banking sector alone will be able to meet funding needs," he stated. 


"Instead, we expect Saudi corporates to increase their borrowing activities in debt capital markets. This will lead to a progressive rebalancing of the country’s financial system and the development of a broader local capital market," he added.-TradeArabia News Service




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