Saudi Arabia has overtaken China and become the largest seller of bonds among emerging markets, breaking China’s 12-year dominance, according to Bloomberg.
Data on new bond sales by both governments and companies this year reveal that Saudi Arabia is borrowing at a record pace as global debt investors begin to support the Vision 2030 plan launched by Saudi Crown Prince Mohammed bin Salman.
On the other hand, Chinese borrowers are witnessing a frenzy of buying of local currency bonds, which has slowed international issuances.
Overtaking China is meaningful for Saudi Arabia, whose domestic product represents 1/16 of China’s GDP.
The latest data indicates improved sentiment as Riyadh seeks to finance projects to diversify the economy instead of relying on oil as part of its endeavor to be a link between Asia and Europe.
At the same time, the rest of the emerging markets are also witnessing a successful year for bond issuance, amid low borrowing costs and the search for attractive returns.
Bloomberg quoted Apostolos Pantis, Managing Director of Fixed Income Consulting at the Zurich-based Union Banker Privee (UBB), as saying, “Sentiment towards Saudi bonds is very healthy. It is not surprising that the Kingdom has become the largest issuer of bonds in emerging markets given its financing needs.” For large infrastructure projects.
Bond sales from Saudi entities have increased by 8% so far this year and have exceeded $33 billion, with the government contributing more than half of that amount, including a $5 billion dollar-denominated sukuk deal last month.
The Kingdom is working to find alternative financing sources to help cover the expected financial deficit of about $21 billion this year, and expects the total financing activities for this year to reach about $37 billion to help accelerate the development of the implementation of Vision 2030.
Big market
According to Bloomberg, Saudi Arabia has turned into a major market for bonds, because foreign direct investment has not achieved its goals, while oil revenues have declined, and Saudi Arabia has been affected by supply cuts.
According to the agency, the Kingdom’s borrowing calls for caution among some money managers, and Barclays Bank has lowered Saudi Arabia’s sovereign credit rating to below the market assessment based on “repeated” bond issuance, low oil prices, and tensions in the Middle East as a result of the continued Israeli aggression on the Gaza Strip.
“Saudi Arabia cannot maintain the current pace of bond issuance for a long period, because that will start to affect the cost of financing,” UBB’s Pantis said.
Overall, international bond sales in emerging markets increased by 28% compared to the previous year to reach $291 billion, the highest level in similar periods since 2021.
The additional yield required by investors to buy emerging market sovereign and corporate bonds combined rather than Treasuries is now about 266 basis points, below the five-year average of 336 basis points, according to the Bloomberg index.
