The mood in Saudi Arabia is fearful. The stock market has crashed for the second time in two years. It has fallen to five-year lows and this time the big investors have been hurt. Oil prices have collapsed, along with petrochemicals prices.
But there is good news. Bankers and lawyers in Saudi Arabia have told Euromoney of at least four new local-currency bond or sukuk issuances in the pipeline.
More conservative observers say debt capital market issuance in Saudi Arabia will be equal to or slightly down on last year. This is healthy given the circumstances. One authoritative source reckons Saudi debt capital market issuance this year will be 25% higher than in 2008 at SAR12 billion ($3.2 billion).
Issuance is most likely to be in an Islamic format and in the low hundreds of millions of dollars each time. It will be from blue-chip companies, and privately placed (there is more bureaucracy involved in the public market).
Few will want to list on a stock market so lacking in confidence, although there are some big IPOs waiting.
One reason for the relative health of the debt capital markets in Saudi Arabia is that investors are looking for more stable returns after being burnt on the stock market yet again. Bank investors are more important in the shift in focus away from the equity market than family offices or high-net-worth individuals.
For banks, buying bonds is less risky than lending in this market of increased uncertainty, where credit risk might rise rapidly in such segments as the private-sector petrochemical industry. Low interest rates also mean government securities give lower returns.
One can look at the climate in Saudi Arabia in a gloomy way but a deluge of insurance start-ups is also helping the Kingdom develop its debt capital market during the downturn.
The government is keen to encourage this by buying debt instruments. When the mortgage law is at last passed this will lead to a bulge in the debt capital markets and even in securitization – just as countries that recently bred these products curse their existence.
