Saudi Arabia to list more than 200bn riyals in government bonds and sukuk on Tadawul

Saudi Arabia's Ministry of Finance will list more than 200 billion in Saudi riyal-denominated government bonds and sukuk on the Tadawul stock exchange, a step that will help develop the local debt market.

"The listing of government debt instruments on Tadawul is a key pillar of the Saudi government's strategy to make the kingdom a global investment powerhouse," Fahad Al Saif, President of the Debt Management Office at the Ministry of Finance, said in a statement on the ministry’s website. "Government debt instruments will offer many advantages to an expanding investor base.”

As of April 8, 45 bonds and sukuk issuances at a total value of 204.38bn riyals (Dh200.15bn) will be listed, including government development bonds (77.72bn riyals), floating rate notes (68.21bn riyals) and government sukuk (58.45bn riyals). The period of issuance varies for each of the government debt instruments. Maturities range between 5, 7 and 10 years.

Saudi Arabia, the world’s biggest oil exporter, is undertaking reforms to help wean itself off hydrocarbon income and create new revenue streams under the umbrella of Vision 2030 economic roadmap. The development of a local debt market is part of reforms aimed at attracting investments to the kingdom.

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"This step was preceded by the registration of debt instruments at the Securities Depository Centre and arranging of the local sukuk programme, followed by further steps to develop and deepen the local and secondary debt markets," said Minister of Finance, Mohammed Al Jadaan.

"The listing of government debt instruments is an important step towards increasing transparency under a supervisory framework that provides disclosure to investors.”

The kingdom, the largest Arab economy, began issuing domestic Sharia-compliant bonds to bridge a fiscal deficit caused by low oil prices. The government in July started selling sukuk under a new programme.

“The idea would seem to be to diversify involvement in the Saudi riyal government debt market by tapping new sources of demand so as to reduce reliance on banks as holders themselves,” said Michael Grifferty, president of  Dubai-based The Gulf Bond and Sukuk Association. “Presumably the listing could draw in more resident and non-resident institutions who could underpin demand and contribute to liquidity.”

The kingdom, which unveiled last year its biggest budget yet for 2018 to boost growth in the wake of fiscal consolidation and on lower crude output, expects to issue debt, both locally and internationally to finance its shortfall.

Saudi Arabia is forecasting a fiscal deficit of 195bn riyals for 2018 or 7.3 per cent of GDP, compared with a shortfall of 230bn riyals or 8.9 per cent of GDP in 2017.

The government, which issued 134bn riyals in debt in 2017 to finance the budget deficit, is projecting only 117bn riyals in debt issuance for 2018. Debt issuance should not exceed 30 per cent of the country’s GDP.