Saudi debt market to continue to grow after 18.3% rise: Fitch

Saudi Arabia’s outstanding debt capital market will see further growth after an 18.4 percent annual increase in the third quarter of 2023, according to research by Fitch Ratings.

The agency said the total sector size hit $358.8 billion, with 62 percent as sukuk and the rest in bonds.

The Kingdom’s debt capital market growth is expected to be supported by the diversification of funding and the development of capital markets in Saudi Arabia.

Bashar Al-Natoor, global head of Islamic finance at Fitch, said “ambitious giga-projects and capital market development initiatives” were also fueling the sector’s expansion.

He added: “We expect continued initiatives to diversify funding – not only by the sovereign, but also by banks, corporates and projects that are likely to seek alternative channels like DCM”.

In a press note, Fitch said the corporate funding culture in Saudi Arabia is still geared mostly towards bank financing, but this is gradually changing.

“Saudi riyal issuance was almost solely dominated by sukuk across all sectors over the past five years, and the government only issues local-currency debt in sukuk format,” it added.

Saudi Arabia accounted for 25.1 percent of the global US dollar sukuk market in the third quarter of the year.

The Kingdom has the largest debt capital market in the Gulf Cooperation Council, with 69.4 percent of the sukuk market.

It also has 23.4 percent of the US dollar global environmental, social, and governance sukuk market.

Sukuk issuances stood at $12.3 billion in the three months to the end of September, down 2.1 percent on the previous quarter.

Bonds issuances were $1.4 billion – up 16.8 percent on the second quarter of the year.

Some 90 percent of issuances in the three months to the end of September were in sukuk format.

Fitch rates $46.7 billion of Saudi outstanding sukuk, 97.1 percent of which are investment-grade.

The press note said: “Liquidity available to the banking sector has tightened, and we expect deposits to remain the main source of funding for Saudi banks in the longer term.

“However, all banks are expected to continue diversifying their funding bases through wholesale funding, including issuing sukuk and bonds.

“We also expect (the) corporate segment to reduce reliance on bank financing and issue more debt.”