Saudi financial sector to grow bond offerings, investment minister reveals at London forum

Saudi financial sector to grow bond offerings, investment minister reveals at London forum
Khalid Al-Falih speaking at the UK-Saudi Sustainable Infrastructure Summit in London. X/@MISA
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Updated 25 June 2024

Saudi financial sector to grow bond offerings, investment minister reveals at London forum

Saudi financial sector to grow bond offerings, investment minister reveals at London forum

RIYADH: Bond offerings in Saudi Arabia are set to expand with increased activity, highlighting significant growth opportunities in the Kingdom’s financial sector, according to the investment minister.

On the sidelines of the UK-Saudi Sustainable Infrastructure Summit in London on June 24, Khalid Al-Falih noted that despite the substantial and rapid growth in business opportunities in the Kingdom, certain aspects of the financial sector have not progressed fully, reported the Independent Arabia.

“Considering the size of the growth acceleration and its scope in business opportunities in Saudi Arabia, some aspects related to the financial sector have not fully evolved yet, especially in terms of penetration levels and trading of issued bonds. Bond offerings in Saudi Arabia should witness growth through increased activity. There are significant growth opportunities available in Saudi Arabia,” Al-Falih stated.

The minister emphasized that sustainable energy sources are a pivotal sector set for significant growth in the Kingdom, positioning the nation as a worldwide leader in competitive solutions, contributing to global economic growth.

Saudi Ambassador to the UK Prince Khalid bin Bandar said the relationship between Riyadh and London has “grown stronger over time and will continue to strengthen,” reported the Independent Arabia.

He added: “Our mission is to ensure that people living in Saudi Arabia, regardless of what is happening there today, continue to receive those opportunities.”

The ambassador further highlighted the expansive growth potential across all industries in the Kingdom, highlighting upcoming presentations about promising opportunities in the country.

“For example, if you look at the country's capacity for renewable energy, before launching the 2030 plan, it was very limited, and today we are doubling what we can offer year after year. By 2030, our goal is for 50 percent of our energy sources to be renewable, produced by clean energy,” Bandar said.

He continued: “This is just the beginning, and we will continue to do so in every area you can imagine, whether it's this topic or another. I think it makes our mission easy to know that there is always room for growth.”

According to the Independent Arabia, the ambassador further explained his perspective on investment opportunities in Saudi Arabia, saying that he learned from his days in the private sector the danger of being the one to “miss the boat.”

He continued: “I say that the promising investment opportunities in Saudi Arabia are making the boats flow, and they are getting bigger every day, and more ports are opening their arms. Yes, there are promising opportunities in Saudi Arabia. Some people might say ‘I can miss this boat and get on the next one,’ and I say ‘Why should you miss this boat?’ There are great opportunities in Saudi Arabia.”

He discussed the bright future ahead for the nation’s many industries, pointing out that they are now expanding, particularly in the financial sector.

“You can talk about these opportunities or go explore them in Saudi Arabia,” he said to the group of investors, reported the Independent Arabia.

Nadhmi Al-Nasr, CEO of Saudi Arabia’s $500-billion giga-project NEOM, said that the Kingdom is eager to strengthen its infrastructure-focused alliances with Britain.

Al-Nasr stated that NEOM is currently the largest sustainable region in the world and highlighted bold plans and objectives to become carbon neutral by 2030. He mentioned that NEOM will encompass 26,500 sq. km, which is the same area as Belgium.

“The United Kingdom has some of the most innovative green technology companies that embrace the circular economy and green, sustainable solutions. We look forward to integrating new and existing partnerships with our British funding, and we see that there are several great opportunities for both countries on the rise,” Al-Nasr said, as reported by the Independent Arabia.

Furthermore, the Lord Mayor of the City of London, Alderman Professor Michael Mainelli, said that “Vision 2030” represents a foundational strategy for economic and social transformation in Saudi Arabia.

“I have heard about 14 major projects, which are amazing, futuristic, and inspiring projects, along with a plan for important infrastructure initiatives worth $800 billion to double the size of Riyadh city over the next decade,” Mainelli said.

He underscored that “these giant projects will support major events that we will hear about, such as Saudi Arabia hosting Expo 2030 and the 23rd and 24th World Basketball Championships, and Miami Valley skiing holidays.”

Mainelli continued: “These diverse events will play a prominent role in the future, all of which are related to the ambition of building modern, reasonable, and sustainable cities, as evident from Saudi Arabia's embrace of new technologies such as hydrogen and artificial intelligence.”

The Lord Mayor of the City of London added that artificial intelligence and other technologies will propel Saudi Arabia toward net zero and broader climate goals.

China’s envoy to KSA meets with Saudi finance vice minister

China’s envoy to KSA meets with Saudi finance vice minister
Updated 4 sec ago

China’s envoy to KSA meets with Saudi finance vice minister

China’s envoy to KSA meets with Saudi finance vice minister

RIYADH: China’s newly appointed ambassador to the Kingdom met with Saudi Arabia’s finance vice minister in Riyadh, signaling that relations between the two countries are set to flourish.

Abdulmuhsen Al-Khalaf welcomed Chang Hua on July 15 at the headquarters of the Ministry of Finance, where the pair discussed joint relations between their nations and ways to enhance them, as well as additional economic and financial topics of common interest, according to the Saudi Finance Ministry.

Diplomatic and economic ties between Saudi Arabia and China have been strengthening in recent years. In November 2023, the Kingdom’s central bank, also known as SAMA, and the People’s Bank of China signed a local currency swap agreement worth $6.93 billion

Global sukuk issuance hits $91.9bn in H1: S&P Global 

Global sukuk issuance hits $91.9bn in H1: S&P Global 
Updated 23 min 54 sec ago

Global sukuk issuance hits $91.9bn in H1: S&P Global 

Global sukuk issuance hits $91.9bn in H1: S&P Global 

RIYADH: Global sukuk issuances reached $91.9 billion in the first half of 2024, marking a marginal year-on-year increase of 0.87 percent, driven by issuers from Saudi Arabia and the UAE. 

According to the latest report from S&P Global, foreign currency issuances reached $32.7 billion in the first six months of 2024, marking a 23.8 percent surge compared to the same period the previous year.  

The credit rating agency highlighted that improved visibility on the medium-term trajectory of interest rates has boosted foreign currency-denominated sukuk issuance. 

A sukuk is an Islamic financial certificate that represents ownership of an asset and complies with Shariah law, distinguishing it from conventional bonds. 

Saudi Arabia has strategically expanded its sukuk issuance to diversify financing sources and promote Islamic finance within its economy, supporting infrastructure and economic development while attracting global investors seeking Shariah-compliant opportunities. 

“High financing needs in core Islamic finance countries, stable rates, and improved clarity on the future path of rate cuts explain the continued increase in foreign currency-denominated issuances,” stated S&P Global. 

Its findings follow a recent report by Saudi Arabia’s Capital Market Authority, indicating significant growth in the Kingdom’s sukuk and debt capital market since 2019, exceeding SR30 billion, and achieving an annual growth rate of 7.9 percent. 

Moreover, Saudi Arabia’s National Debt Management Center reported completing the issuance of a riyal-denominated Islamic bond for June totaling SR4.4 billion. The Kingdom had issued sukuk amounting to SR3.23 billion in May, SR7.39 billion in April, and SR4.4 billion in March. 

Global forecast  

Meanwhile, S&P Global has maintained its global sukuk issuance forecast at around $160 billion to $170 billion, buoyed by strong market performance in the first half of 2024. 

The US-based firm emphasized that the Islamic bond market’s steady growth will be propelled by economic diversification initiatives in countries such as Saudi Arabia, as well as the robust expansion of the non-oil sectors in the UAE. 

The report also underscored contributions to the sukuk market’s growth from countries like Oman, Malaysia, and Kuwait. 

It added that geopolitical risks are not expected to adversely impact the issuances of these Shariah-compliant debt products globally. 

“Geopolitical risk has not yet dragged on issuance but could pose some downside risk, though, under our base-case scenario, we do not expect significant disruption,” said the agency.  

S&P noted that the adoption of the Accounting and Auditing Organization for Islamic Financial Institutions’ Sharia Standard 62 might lower issuance volumes in the medium term if it significantly changes the nature and risk profile of sukuk instruments. 

In late 2023, the AAOIFI released its exposure draft of Sharia Standard 62 on sukuk, delaying the industry feedback deadline twice, with the final extension set to July 31, 2024, from March 31, 2024. 

According to the credit rating agency, the proposed draft could potentially alter the nature of the sukuk market and lead to increased fragmentation.  

The guidelines cover Shariah requirements for issuances, asset backing, and ownership transfer. They also address investment structures, financing mechanisms, and trading and settlement procedures. 

“A key requirement of the standard is that the ownership and risks related to the underlying assets are to be transferred to sukuk holders. As such, the market will shift from structures where the contractual obligations of sukuk sponsors underpin the repayment to structures where the underlying assets have a more prominent role,” said S&P Global.  

The report further noted that the adoption of these proposed standards could make these Islamic bonds more expensive than conventional issuances.  

It added: “However, it is difficult to anticipate the appetite for such instruments from both investors and issuers, as well as the legality of moving assets off their balance sheets, given the current market structure. This could either lead to further market fragmentation or worse, issuance could be put on hold until sukuk structures figure out a middle ground.”  

The report, however, added that the adoption of the AAOIFI’s Standard 62 guidelines is unlikely to disrupt existing sukuk, since any changes in contractual obligations are subject to investors’ consent.  

Local issuances  

Despite the growth of foreign issuances, local currency-denominated issuances witnessed a decline of 8.8 percent in the first half of this year compared to the same period in 2023. 

S&P Global noted that this downturn was driven by the drop in local currency issuances in countries like Turkiye, the UAE, and Pakistan.  

“The largest drop of local currency issuances was in Turkiye, where monetary tightening combined with better fiscal policy coordination continues to help rebalance the economy,” said the report.  

It added: “In the UAE, the decline can be explained by lower local-currency denominated issuance by the Federal Government and other authorities. For Pakistan, the issue might be related to a lack of data on issuances in the first half of 2024.”  

On a positive note, the report underscored the growth of Saudi Arabia’s local currency issuance.  

“We have observed that local currency issuance in Saudi Arabia has resumed its growing trend. The government has tapped the market with jumbo issuances and has also started to issue retail sukuk,” added S&P Global.  

On the other hand, financing needs in core Islamic finance countries, stable rates, and improved clarity on the future path of rate cuts drove the continued increase in foreign currency-denominated issuances.  

“We have seen a high issuance volume in Saudi where the government and banks continue to tap into the market to finance various projects related to the economic transformation plan. We now expect the Saudi banking system to shift to a moderate net external debt position in the next few months,” said the report.  

S&P Global added that countries like the UAE, Malaysia, Kuwait and Qatar also witnessed a rise in foreign currency-denominated issuances during the first half of this year.  

Sustainable sukuk  

According to the analysis, the total volume of sustainable sukuk issuance reached $5.2 billion during the first half of 2024, down from $5.7 billion during the same period last year.  

The credit rating agency projected that the volume of these green bonds is expected to hover around $10 billion to $12 billion, barring any significant acceleration in the implementation of net-zero policies by key Islamic finance countries or regulatory actions. 

Sustainable sukuk is a Shariah-compliant financial tool wherein issuers utilize the proceeds solely to finance investments in renewable energy or other environmental assets. 

The report also highlighted that 80 percent of sustainability issuance in the first six months of 2024 came from banks in the Gulf Cooperation Council region as they started pursuing their climate transition journey.  

In May, another analysis by Fitch Ratings projected that the global sukuk market linked to environmental, social, and governance principles is expected to exceed $50 billion in the next two years.  

The credit rating agency noted that the projected growth of the market is driven by new ESG mandates, regulatory frameworks, and government-led sustainability initiatives. 

Fitch also revealed that the GCC debt capital market has reached $940 billion in outstanding sukuk and is steadily approaching the $1 trillion mark. 

Saudi Arabia in top 2 among G20 in ICT development for 2nd consecutive year

Saudi Arabia in top 2 among G20 in ICT development for 2nd consecutive year
Updated 51 min 12 sec ago

Saudi Arabia in top 2 among G20 in ICT development for 2nd consecutive year

Saudi Arabia in top 2 among G20 in ICT development for 2nd consecutive year

RIYADH: Saudi Arabia has maintained second place among G20 countries in a UN ICT Development Index, highlighting the resiliance of the Kingdom’s digital infrastructure.

Published by the international organization’s International Telecommunication Union, the ranking tracks the digital development and progress of 170 nations in information and communication technology services through sub-indicators divided into two axes: inclusive and effective communication. 

It also measures the strength of digital infrastructure, according to a statement.

The analysis also revealed that the Kingdom ranked first among the G20 countries in the effective communication axis and second in the inclusive communication axis, according to the Saudi Press Agency.

The Kingdom’s Communications, Space, and Technology Commission indicated that Saudi Arabia’s continuous advancement in the index underscores the robustness of its digital infrastructure and its role in propelling the growth and expansion of the digital economy and attracting investment, the SPA report noted.

This comes as the Kingdom’s communication and technology market is the largest and fastest growing in the Middle East and North Africa region, with an estimated value of SR166 billion ($44.2 billion).

Abu Dhabi’s GDP grows by 3.3% in Q1, driven by non-oil sectors

Abu Dhabi’s GDP grows by 3.3% in Q1, driven by non-oil sectors
Updated 16 July 2024

Abu Dhabi’s GDP grows by 3.3% in Q1, driven by non-oil sectors

Abu Dhabi’s GDP grows by 3.3% in Q1, driven by non-oil sectors

RIYADH: Abu Dhabi’s gross domestic product increased by 3.3 percent annually during the first quarter of 2024, driven by the growth of non-oil economic activities.

According to the Statistics Centre of Abu Dhabi, this rise is primarily attributed to the performance of non-oil economic activities; non-oil GDP increased significantly by 4.7 percent during the first three months of this year.

This trend of strong performance in non-oil sectors extends beyond Abu Dhabi, with Saudi Arabia’s real GDP expected to grow by 2.5 percent in 2024, driven by a robust 4.8 percent increase in non-oil private activities. 

Similarly, economic growth in the Gulf Cooperation Council region is projected to rebound to 2.8 percent in 2024 and 4.7 percent in 2025, according to the World Bank’s Spring 2024 Gulf Economic Update.

The SCAD’s report noted that transportation, construction, financial activities, and accommodation, as well as food sectors, led the positive trend, reflecting the success of the government’s economic diversification policies.

The center’s estimates revealed that non-oil activities contributed 54.1 percent to Abu Dhabi’s overall economy in that period, the highest level since 2015. 

The quarterly value of the non-oil economy reached 154.7 billion dirhams ($42.1 billion), while the total value of Abu Dhabi’s economy, including oil and non-oil sectors, was 286 billion dirhams.

Chairman of the Abu Dhabi Department of Economic Development, Ahmed Jasim Al-Zaabi, stated: “Our economy continues to deliver consistent, stellar growth, reaffirming its resilience and dynamism to navigate headwinds and global challenges impacting all economies and sectors.”

He added: “Guided by the leadership’s far-sighted vision and backed by strong fundamentals, Abu Dhabi’s soaring Falcon Economy has taken great strides to accelerate growth and transition to a smart, diversified, inclusive and sustainable economy.”

Al-Zaabi noted that with this growth, they are forging ahead with their strategies to cement Abu Dhabi’s position as a global magnet for outstanding talents, businesses, and investments. 

He also highlighted that their attributes as the Capital of Capital are attracting global financial powerhouses to Abu Dhabi, supporting monetary activities to grow by 9.7 percent, and supercharging non-oil sectors, which have contributed 54.1 percent to total GDP in the first quarter of 2024.

Abdulla Gharib Al-Qemzi, acting director general of SCAD, emphasized the sustained growth in non-oil sectors, which enhances Abu Dhabi’s local and international leadership position.

The emirate’s competitive climate attracts foreign investments, especially in construction, which contributed 8.8 percent to the overall economy, exceeding 25 billion dirhams in value. 

This growth reflects Abu Dhabi’s commitment to advancing its global position, focusing on increasing GDP, non-oil exports, and tourism’s economic contribution.

Construction activities grew by 9.5 percent in the first three months compared to the same period in 2023, contributing 8.8 percent to the overall economy—the highest in the past five years. 

This sector’s attractiveness for local and foreign investments is evident in its consistent quarterly growth of 22.6 percent over the past decade, coinciding with an increase in the number of real estate units in the emirate, totaling 754,555 units since 2011.

The finance and insurance sector grew 9.7 percent in this quarter compared to the corresponding period last year, contributing 7 percent to the emirate’s economy. The value added by this sector increased by 39 percent over the past decade, reaching 20 billion dirhams in the first three months of 2024.

Telecommunications, accommodation, and food activities grew by 5.9 percent and 6.2 percent, respectively, highlighting efforts to enhance the tourism sector’s GDP contribution. Transport and storage activities saw a 14.4 percent year-on-year growth.

Manufacturing activities grew by 1.7 percent, contributing 8.7 percent to the emirate’s GDP. The quarterly value of this sector exceeded 24.8 billion dirhams, marking a 102 percent increase over the past decade.

Abu Dhabi’s continuous growth rates result from strategic initiatives focused on economic diversification, industrial sector development, and encouraging foreign investments, reflected in the high performance of the non-oil GDP, which exceeded 9.1 percent in 2023.

Oil Updates — crude falls on lingering demand concerns in China 

Oil Updates — crude falls on lingering demand concerns in China 
Updated 16 July 2024

Oil Updates — crude falls on lingering demand concerns in China 

Oil Updates — crude falls on lingering demand concerns in China 

RIYADH: Oil prices slipped on Tuesday on worries about a slowing Chinese economy crimping demand, though a growing consensus that the US Federal Reserve will begin cutting its key interest rate as soon as September limited declines, according to Reuters. 

Brent futures fell 57 cents, or 0.67 percent, to $84.28 a barrel by 09:30 a.m. Saudi time, while US West Texas Intermediate crude dropped 59 cents, or 0.72 percent, to $81.32. 

IG market strategist Yeap Jun Rong, in an email, said the weaker run in Chinese economic data “cast some doubts on whether market participants are being overly optimistic around Chinese oil demand outlook.” 

The world’s second-largest economy grew 4.7 percent in April-June, official data showed, its slowest since the first quarter of 2023 and missing a 5.1 percent forecast in a Reuters poll. It also slowed from the previous quarter’s 5.3 percent expansion, hamstrung by a protracted property downturn and job insecurity. 

“Its 2Q GDP and retail sales figures had surprised on the downside by a significant margin, while anticipation for stronger stimulus measures at the Third Plenum may face the risks of disappointment,” Yeap added, referring to a key economic leadership meeting in Beijing this week. 

In the US, Fed Chair Jerome Powell said on Monday the three US inflation readings over the second quarter of this year “add somewhat to confidence” that the pace of price increases is returning to the central bank’s target in a sustainable fashion, remarks market participants interpreted as indicating that a turn to interest rate cuts may not be far off. 

Lower interest rates decrease the cost of borrowing, which can boost economic activity and oil demand. 

Some analysts cautioned about being overly bullish as expected weakness in some macroeconomic data from the US could still indirectly hurt oil demand in the near-term. 

“Macro factors are not in favour of higher oil prices in the near term (capped below $85/barrel for WTI crude) due to the prospect of weaker US retail sales for June that are due later today,” said OANDA senior market analyst Kelvin Wong in an email.