Saudi Arabian bond market experiences 29% jump in 1H19; loan refinancing sees an 80% drop

Debtwire Par, the provider of high value news, data and analysis on global debt markets, has today released research showing that the Saudi Arabian bond market saw 1H19 end with bond volumes reaching USD 25.6bn from eight deals, representing an increase of 29% in volume year-over-year.  The second quarter dominated, representing 70% of bond volumes for the period, a result of notable deals such as USD 3.1bn and USD 7.5bn of bonds issued from the Government of Saudi Arabia.

However, the country’s loan market in 1H19 significantly dropped compared to 1H18 levels with volume totalling USD 9.8bn from 13 deals. Despite having twice,the number of deals compared with 1H18, volumes represented a 53% decrease year-on-year from 1H18. This decrease is reflective of the overall slow issuance in the region and that the surrounding regions have claimed more market share. In addition, business activity in the country also slowed with the highly anticipated deal from Aramco pushed back to 2021.

Saudi Arabian loan refinancing activity in 1H19 totalled USD 3.7bn, according to Debtwire Par, representing a significant drop of 80% from 1H18 year-on-year. Some of the issuance has been moved to more real estate projects, where government economic reform plans to increase funding by 2030 are already being felt. Despite low margins in the Middle East region offered by major lending players, the exclusive low lending arrangements with the government have slowed medium-sized banks and are beginning to curtail funding from European bankers.

In contrast, 1H19 project financing activity totalled USD 600m worth of volume, representing a 100% year-on-year increase from 1H18. This increase reflects goals set out by Vision 2030, which includes concentrated efforts on infrastructure and privatisation. Project financing was the targeted sector for the country’s vision and the approval of the government’s USD 295bn budget for the year indicates that the incentivised plan is being implemented in the sector. Sovereigns dominated total issuance in 1H19, totalling near USD 5.65bn or 58% of volumes.

Bond issuance was 100% new money in 1H19, of which M&A issuance totaled USD 12bn representing 47%, a near-100% year-on-year increase, from very little activity in the country during 1H18. Corporates dominated total issuance in 1H19 totalling near USD 11.6bn or 55% of volumes. 

Diana Apedu, Market Analyst at Debtwire Par, commented: 

“Saudi Arabia is the fourth largest loan issuer in the MENAT region for 1H19 and fifth in the entire CEEMEA market. However, placing the country’s position in perspective, there was a 6% year-on-year increase in loan volume in 1H18. Sub-Sahara Africa and Central & Eastern Europe gained market share whilst volumes in the MENAT region fell by 18% over the same period. Saudi made up 15% of the 1H19 MENAT share and 8% of the CEEMEA market, representing USD 9.8bn volumes.

In contrast, Saudi Arabia completely dominated the bond market and claimed top issuance in the MENAT region. The country grabbed 20% market share of the CEEMEA market. Volumes soared by 101% from USD 12.7bn in 1H18 to USD 25.1bn in 1H19. While the CEEMEA bond market fell by 5.8%, the MENAT region captured 6.7% more of the market. The difference in volume from USD 71.2bn in 1H18 to USD 76.1bn in 1H19 was largely due to Saudi Arabia.”

Campbell Steedman, Managing Partner, Middle East at Winston & Strawn LLP, commented:

“This is an exciting time for Saudi Arabia and the Middle East region, with the privatisation of state-owned enterprises bringing major opportunities to support the kingdom’s ambitious economic transformation plans. As the Saudi government aims to secure more firms tapping into local debt markets, recent activity within the bonds and loans market have also been encouraging, including SEC’s Murabaha loan and Bahri’s recent USD 133 million facility from Riyad Bank to support their expansion programme. The marked increase in project financing activity over the past year is also a clear indicator that capital inflows into Saudi Arabia are on an upward trajectory, and that confidence in the kingdom’s privatisation and wider reforms programmes remain high.”

Debtwire’s sister company, Mergermarket, will host the 2019 edition of its Saudi Arabian M&A and Capital Markets Forum in Dubai on 9th September. The Saudi Arabian M&A and Capital Markets Forum will bring together dealmakers and provide an overview of the market through panels and case studies.