Saudi corporates’ funding mix is evolving, says Fitch Ratings

RIYADH: Saudi corporates’ funding mix is evolving, with the debt capital market for firms increasing noticeably and averaging a 10 percent increase year-on-year, Fitch Ratings said in a new report.

The US agency expects Saudi DCM issuances to continue growing in the near term, supported by the private sector’s increased contribution to the overall economy. 

Fitch also expects the large Islamic banking sector to drive domestic sukuk growth, increasing the contribution of DCM and equity capital markets to capital structure in the medium term. 

The capital structure diversification may however be challenged by low-cost bank funding and still-developing regulatory framework, the New York-based agency said.

Bank funding represented nearly 98 percent of Saudi corporates’ capital structure in 2021, with the remainder being funded by equity and debt instruments.

DCM activity remains predominantly Sukuk-based, representing nearly 100 percent of corporates’ fixed-income issuances in 2021 compared to 60 percent in the previous year. 

Local Sukuk issuances have steadily grown in the local capital market, totalling 41 percent of DCM activity in 2021.

Fitch expects local and international issuance to continue growing in 2022 and 2023. 

Saudi corporates have also raised SR32 billion ($8.5 billion) through initial public offerings and equity proceeds on the region’s largest stock exchange. 

Equity proceeds represented nearly 74 percent of total funds raised on the debt and equity capital markets in 2021, a key differentiating factor for Saudi corporates compared to regional peers, according to Fitch.

To avoid distortions, the dashboard excludes fixed-income and equity issuances raised by Saudi Arabian Oil Co. the agency said.