RIYADH: Saudi Arabia’s capital markets have raised $274 billion over the past five years, reflecting the Kingdom’s efforts to finance its Vision 2030 economic transformation plan.
The Capital Market Authority’s 2024-2026 strategy aims to promote investment, attract global interest, and support economic diversification, advancing the nation’s financial sector.
According to a report from S&P Global, Saudi issuers, including the government and private sector, have raised more than $130 billion over the past five years through US dollar-denominated issuances.
“This comes on top of the $144 billion that they raised locally in Saudi riyal during the same period, with the implementation of Saudi Vision 2030 explaining part of this flurry,” the US-based credit rating agency said.
While the government makes up about 60 percent of these issuances, Vision 2030 has also opened significant opportunities in the non-oil economy and banking system.
Despite the rise in external leverage, market conditions remain favorable, with falling interest rates providing supportive dynamics, S&P said.
“We still expect leverage to remain manageable in our base-case scenario, with private-sector debt to GDP (gross domestic product) staying below the 100 percent mark in the next 12-24 months,” the agency added.
The current market environment is favorable for issuers, with declining interest rates and supportive financial conditions providing a conducive backdrop for sustained capital raising. This trend will continue as the Kingdom pushes ahead with large-scale projects and economic diversification efforts.
Residential mortgage-backed securities market on the horizon
One of the key factors to watch over the next one-to-two years is the potential establishment of a residential mortgage-backed securities market in Saudi Arabia.
The credit rating agency said that at the end of September, “banks were sitting on more than $175 billion of mortgages that are predominantly at fixed rates and have short-term funding sources, primarily in the form of domestic deposits.”
If interest rates continue to decline, these mortgages could become more attractive for secondary market transactions. The ability to securitize and sell them would allow banks to move assets off their balance sheets, freeing up capital for further lending and investment in Vision 2030 initiatives.
“This assumes that the legal hurdles relating to the issuance of RMBS are resolved, or at least the risks are floored at a level that would attract local and international investors’ interest,” S&P said.
The Saudi Real Estate Refinance Co., which has an A-/Positive rating, is expected to play a key role in facilitating RMBS market development.
Direct market issuances could emerge as another avenue for mortgage-backed securities, potentially unlocking significant financial capacity for banks.
