RIYADH: Saudi Arabia has emerged as the top issuer in the Gulf Cooperation Council bond market in the first half of 2024, raising $37 billion through 44 issuances, according to recent data.
The Markaz GCC Bond and Sukuk Market Report indicated that this number was up 12.5 percent from the same period last year, representing 49 percent of total new supply of GCC bonds and sukuk.
The overall value of GCC primary issuances reached $75.5 billion during the period, up 38 percent from $54.8 billion in the first half of 2023, the number rising from 130 to 173.
Saudi Arabia's Vision 2030 includes several large projects that require substantial funding. While the Kingdom's banks have traditionally relied on deposit growth as their primary funding source, the scale of these projects exceeds their liquidity capabilities.
Consequently, these banks are expected to seek additional deposits and access the international credit market to meet their financing needs. In addition, these projects receive significant support from the central government and related agencies.
The Public Investment Fund has announced plans to deploy $70 billion annually after 2025 and is considering its own fundraising initiatives.
Samer Jumen, partner and head of infrastructure at KPMG in Saudi Arabia, said in a Bloomberg interview that it is wise to access capital markets while liquidity remains available, adding that large amounts of financing are needed.
Despite these ambitious funding requirements, Saudi banks' balance sheets are still considered healthy, with S&P Global Ratings assigning an investment-grade rating and a stable outlook to most major lenders. However, they will not be able to shoulder the entire financial burden of Vision 2030 by themselves.
Debt issued by geography
According to the Markaz report, the UAE followed Saudi Arabia in terms of value, raising $20.6 billion through 65 issuances in the first half of 2024, up from $15.4 billion from 58 issuances in the same period last year. This represents 27 percent of the total value of primary GCC bond and sukuk issuances.
Qatari institutions were the third largest issuers within the GCC with $10.5 billion, a 416 percent increase over the same period last year.
Bahraini institutions captured 4 percent of the market, raising $3 billion through 4 issuances, while Omani institutions secured $1.7 billion, representing 2 percent of the total.
Kuwaiti issuers raised $2.6 billion through 15 offerings, a 791 percent increase from $300 million in the same period last year, representing 4 percent of the market.
According to the report, 75 percent of GCC conventional and sukuk bond offerings in the first half of 2024 were rated by major credit rating agencies, including S&P, Moody's, Fitch, and Capital Intelligence.
This is a decrease of 85 percent compared to the same period of the previous year. Of these rated issuances, 71 percent were classified as investment grade, highlighting a strong focus on high quality debt despite an overall decline in the proportion of rated bonds.
This shift indicates a developing dynamic in the regional bond market, with a continued preference for investment-grade securities with slightly less emphasis on credit ratings.
Area Allocation
According to Markaz, the government sector led primary loan offerings by value in the first six months of this year, raising $41.5 billion, or 55 percent of total GCC issuances.
In July, Saudi Arabia expanded access to its local bond markets by appointing five new financial institutions – Albilad Investment Co., Al Jazeera Capital Co., Al Raji Capital Co., Derayah Financial Co., and Saudi Franchi Capital Co. – as primary distributors. Government debt instruments.
These institutions join existing primary dealers including Saudi National Bank, Saudi Awal Bank, and Al Jazeera Bank, as well as Alinma Bank, and Al Raji Bank. The purpose of this expansion is to diversify the investor base and increase participation opportunities in the local credit market through additional distribution channels.
Following the government sector, the financial segment, including semi-government institutions, raised $28.8 billion or 38 percent of the total proposals. The utilities sector came next, representing 4 percent of the market, raising $2.9 billion through five issuances.
Sovereign vs. Corporate
The Merck's Bond Report highlighted a significant shift in sovereign debt issuance in the GCC to 2024. Total primary sovereign issuances rose 77 percent to $41.5 billion in the first half of the year compared to $23.4 billion in the same period in 2023.
Saudi Arabia led this increase by issuing $5 billion of sukuk, the largest sovereign issuer in the GCC. In contrast, Kuwait did not participate in issuing sovereign bonds during this period.
Corporate debt issuance in the GCC also saw growth, rising 8 percent to $34 billion in the first half of 2024, from $31.4 billion a year earlier. Government-related institutions accounted for $9.1 billion, or 22 percent of total corporate debt.
The UAE emerged as the top issuer with $12.8 billion in corporate debt, while Saudi Arabia's PIF made headlines with its $1.8 billion issuance, the largest corporate bond offering in the GCC during the period.
Traditional vs Sukuk
In the first six months of 2024, Saudi Arabia led the regional sukuk market by issuing $5 billion, contributing significantly to the overall growth of sukuk in the GCC.
Sukuk volume increased by 14 percent compared to the same period in 2023, reaching a total of $26.6 billion through 31 issuances.
In contrast, conventional bond issuance reached $48.8 billion, a 56 percent increase over the first half of 2023, with the Saudi government also leading the category with an offering of $4.8 billion.
S&P Global Ratings forecasts stable global sukuk issuance of $160 billion to $170 billion for the year in 2024, reflecting strong early performance.
Global sukuk issuance reached $91.9 billion in the first six months, up slightly from $91.3 billion a year earlier. Notably, foreign currency sukuk saw growth of 23.8 percent, reaching $32.7 billion, driven primarily by issuers from Saudi Arabia, the UAE and Oman, as well as Malaysia and Kuwait.
