Saudi Arabia’s Capital Markets Experience Robust Growth with $274 Billion Raised
Saudi Arabia’s capital markets have seen remarkable expansion, raising over $130 billion in the last five years to support the Vision 2030 initiative. This growth is part of a broader strategy to attract investment, enhance global interest, and diversify the economy.
A report by S&P Global highlights that Saudi issuers, including government and private entities, have raised significant funds through US dollar-denominated issuances. This is in addition to $144 billion raised locally in Saudi riyals over the same period, largely driven by Vision 2030’s objectives.
Government issuances account for about 60% of these funds, yet Vision 2030 has also spurred opportunities in the non-oil sectors and banking. Despite increased external leverage, favorable market conditions, such as declining interest rates, are supporting continued capital raising.
S&P Global expects that leverage will remain manageable, with private-sector debt to GDP staying under 100% in the upcoming 12-24 months. The favorable financial environment is set to persist as Saudi Arabia continues its large-scale projects and economic diversification.
Emerging Residential Mortgage-Backed Securities Market
In the next couple of years, a residential mortgage-backed securities (RMBS) market might emerge in Saudi Arabia. Banks currently hold over $175 billion in mostly fixed-rate mortgages funded by short-term deposits. Lower interest rates could make these mortgages appealing for secondary market transactions, enabling banks to securitize and sell them, thus freeing up capital for additional lending and investment in Vision 2030 projects.
The success of this market depends on resolving legal challenges to attract local and international investors. The Saudi Real Estate Refinance Co., rated A-/Positive, is expected to be instrumental in developing the RMBS market. Direct market issuances could also provide new opportunities for mortgage-backed securities, potentially unlocking significant financial resources for banks.