Saudi Arabia improves bonds issuance
02 November 2016 Riyadh
Image: Shutterstock
Saudi Arabian government bonds are beginning to see a yield curve that will create a pricing benchmark and support the broader growth of capital markets in the region, according to Fitch Ratings.
Increased revenue from government bonds and the overall healthier market forecast offered by Fitch is expected to create a boost for the country’s burgeoning securities lending and covered short selling markets, which are set to launch in the first half of 2017.
According to Fitch, Saudi Arabia has improved market liquidity with international bond issues worth US $17.5 billion.
“The lack of a sovereign yield curve has been one of several factors holding back corporate bond issuance in the region. But these dynamics are starting to change, and corporate issuance should gradually start to take off in 2017,” commented Fitch Ratings in a note to clients.
“Given the shift in oil prices and our expectation that they will only recover to around US $65 a barrel in the long-term, we believe sovereign issuance from Gulf Cooperation Council members will become a more regular feature of these markets.”
“This is critical because the yield on sovereign debt creates a pricing benchmark from which all other debt instruments in the same market can be priced.”
The improved outlook comes in the middle Saudi Arabia’s ongoing radical reforms to its capital market that also included amending the transactions settlement cycle of listed shares from T+0 to T+2 in order to align it with other international markets. The shift will also take effect in H1 2017.
There has also been movements to reform the corporate debt market to enable easier regulatory approval of debt products.
Increased revenue from government bonds and the overall healthier market forecast offered by Fitch is expected to create a boost for the country’s burgeoning securities lending and covered short selling markets, which are set to launch in the first half of 2017.
According to Fitch, Saudi Arabia has improved market liquidity with international bond issues worth US $17.5 billion.
“The lack of a sovereign yield curve has been one of several factors holding back corporate bond issuance in the region. But these dynamics are starting to change, and corporate issuance should gradually start to take off in 2017,” commented Fitch Ratings in a note to clients.
“Given the shift in oil prices and our expectation that they will only recover to around US $65 a barrel in the long-term, we believe sovereign issuance from Gulf Cooperation Council members will become a more regular feature of these markets.”
“This is critical because the yield on sovereign debt creates a pricing benchmark from which all other debt instruments in the same market can be priced.”
The improved outlook comes in the middle Saudi Arabia’s ongoing radical reforms to its capital market that also included amending the transactions settlement cycle of listed shares from T+0 to T+2 in order to align it with other international markets. The shift will also take effect in H1 2017.
There has also been movements to reform the corporate debt market to enable easier regulatory approval of debt products.
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