Special Report: Saudi banking - Profits grow in first quarter
Sovereign bond issues have become a feature of Gulf economies since the financial downturn took hold late last year. But not in Saudi Arabia. Instead of raising more debt, Riyadh has opted to spend past surpluses to boost its economy.
Should Riyadh choose to launch a bond, there would be a healthy appetite for it. This year’s bond issues by Qatar and Abu Dhabi were oversubscribed. Saudi Arabia, as the largest market in the region, would attract at least as much interest should it issue a bond.
Having been burned by stock market losses in late 2008 and early 2009, many institutional and retail investors in the kingdom will look more favourably at fixed-income products. A sovereign bond would also help to establish a pricing structure that could be used to price corporate debt.
There is a long list of local companies that would like to launch bond sales but are unwilling to do so without some reassurance about how much it will cost. The pricing framework offered by a sovereign issue would help to address that need.
In other countries, a secondary bond market can play a similar role, but that does not exist in Saudi Arabia.
Clearly, Riyadh does not need extra funding from a sovereign bond, but the other advantages it would offer could lead it to issue one anyway.
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