Saudi Arabia debt issuance to see continued growth in 2024: Fitch

Saudi Arabia’s funding diversification plans and market development initiatives are bearing fruit, with the Kingdom’s debt capital market expected to witness continued growth in 2024.

According to Fitch, the Kingdom’s outstanding DCM is growing 14.5 percent year on year, amounting to $360 billion by the end of 2023.

The agency expects this reach $500 billion by the end of this year.

The increased expansion in the Kingdom’s DCM is attributed to the government issuing sukuk both locally and internationally, payments of maturing debts, and opportunistic tapping into the market.

Bashar Al-Natoor, global head of Islamic finance at Fitch Ratings, said: “Saudi Fitch-rated outstanding sukuk totaled $50 billion at the end of 2023, 97.3 percent of which was investment-grade, and all sukuk issuers had stable outlooks. No sukuk defaulted in 2023.”

He added: “We expect Saudi DCM to continue developing in line with the Saudi Vision 2030, supported by the country’s funding diversification plans and capital market development initiatives”.

In 2024, the agency expects corporates to issue more debt, thus reducing reliance on bank financing.

Saudi Arabia’s banking sector’s liquidity pressure moderated in 2023, according to Fitch, with conditions expected to remain “reasonable” in 2024.

The body further noted that deposits will remain the primary source of bank funding. However, funding bases will be further diversified in 2024 through sukuk and bond issuances.

Furthermore, global economic uncertainties and geopolitical volatilities could impact investor appetite, particularly for international parties.

Thus, the body forecasts lower oil prices and interest rates, which could result in a drive of debt issuance.

The Kingdom is currently the second-largest global issuer of Shariah-comliant bonds, with 24.9 percent of the global US dollar sukuk market and 26.7 percent of the total in all currencies at the end of 2023 being driven by riyal issuances.

Furthermore, it has the largest DCM and sukuk market in the Gulf Cooperation Council, followed by the UAE.

The nation holds an outstanding GCC sukuk share of 69 percent of all currencies, with 36.8 percent of all unresolved hard-currency ESG debt being in sukuk format.