Saudi Arabia was the largest US dollar debt issuer in emerging-markets (excluding China), and the largest sukuk issuer globally in H1, 2024. However, the kingdom's debt issuance will likely slow in the second half of 2024, Fitch Ratings says.

Large dividend payments by Saudi Arabian Oil Company (Aramco) are used to temper sovereign financing needs, it noted.

“Nearly all Fitch-rated Saudi sukuk are investment-grade, and 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.

“Although the market is amongst the most developed in the 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.”

The debt capital market (DCM) grew 18% yoy to $407.7 billion outstanding at end-1H24, equally split between US dollars and riyal issues. Debt issuance in 1H24 equalled 100% of 2023 issuance. Nearly two-thirds of 1H24 issuance was in sukuk, and close to 10% of dollar DCM outstanding is ESG debt. While not their main funding source, Saudi banks and corporates are increasingly diversifying into DCM. Sharia requirements mean many Saudi banks and corporates can only issue sukuk, not bonds.

Foreign investors’ share of government local issuances grew to 7.2% of the investor base at end-1H24 (2022: 0.2%). This follows changes such as the inclusion of Saudi issuances in global bond indices (e.g, FTSE Emerging Markets Government Bond Index), and linkages with international central securities depositories – Euroclear and Clearstream. Local banks remain anchor investors, with over 75% share, it said.

The DCM is exposed to oil price and interest volatility, investors’ concern over the scale and use of issuance, and geopolitical risks, Fitch Ratings noted.  

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