Saudi Arabia has become the largest issuer of debt among emerging markets (EM) this year, according to figures crunched by Bloomberg. This development ends China’s 12-year dominance in the EM arena.
Details
Data on new bond sales issued by governments and companies this year show that the Kingdom is borrowing at a significant pace.
This borrowing surge is being supported by global investors backing the ambitious plan “Vision 2030,” launched by Saudi Crown Prince Mohammed bin Salman.
Meanwhile, Chinese borrowers are experiencing a “buying frenzy” for local currency bonds, which has led to a slowdown in international issuances to some of the lowest levels in recent years.
So What
Saudi Arabia surpassing China is monumental, given that the former has 1/16th of the GDP of the “world’s factory,” China.
This shift comes as recent data improved sentiment as Riyadh seeks to finance projects aimed at diversifying its economy, moving away from reliance on oil, and positioning itself as a bridge between Asia and Europe.
At the same time, other emerging markets are also experiencing a “strong year” for bond issuance, driven by lower borrowing costs and the search for attractive returns.
Some Context
Apostolos Bantis, the Zurich-based managing director of fixed-income advisory at Union Bancaire Privee Ubp SA. (UBP), noted that the sentiment towards Saudi bonds is very strong.
He added that it’s not surprising that Saudi Arabia has become the largest bond issuer in emerging markets, given its “significant financing needs” for large infrastructure projects.
Bond sales from Saudi players increased 8% so far this year, surpassing USD 33 billion. The government contributed more than half of the total, including a USD 5 billion denominated sukuk issuance in May.
Overall, international bond sales in emerging markets have jumped 28% year-on-year to USD 291 billion, reaching the “highest level” from comparable periods since 2021.
Now What
Saudi Arabia is seeking alternative financing sources to help cover an expected fiscal deficit of about USD 21 billion this year.
The total financing activities for the current year are projected to reach around USD 37 billion to accelerate the implementation of “Vision 2030.”
The “world’s largest crude oil exporter” has turned to the significant bond market because foreign direct investment targets have not been fully met, and oil revenues have declined due to supply cuts implemented by the OPEC+ alliance.
