Saudi debt instruments won't impact market liquidity: Official

Local government debt instruments, that will start trading on the Saudi Stock Exchange (Tadawul) on Sunday, April 8, will not lead to cash outflows from the market, Abdullah Binghannam, CMA Deputy for Listed Companies & Investment Products, told Argaam in an exclusive interview.

Binghannam added that "Such diversified investment channels will enhance market attractiveness and prevent cash outflows."

The government issues date back to 2015 and were listed on Saudi equity market since mid-2017, but the listing process has been completed, and does not seek to raise fresh funds, Binghannam said.

"Indirect investments in these issues are possible through subscription to mutual funds that have investments to such instruments," Binghannam added.

Investment in debt instruments is available for foreign investors, but these instruments do not offer voting rights, and foreign ownership will have no control on the issuer, Binghannam said.

Moreover, listing government issues will serve as a benchmark for pricing debt instruments in the local equity market, which will in turn help all market participants and ensure price efficiency.

Debt instrument pricing should be based on the benchmark price, which will boost investor turnout for these instruments, and encourage companies to issue and list more bonds on Tadawul.

Pricing outlook had been unclear due to the absence of a benchmark price. Accordingly, other benchmarks were used, including the SAIBOR, LIBOR rate or yields on the dollar-pegged riyal.

Meanwhile, the debt market failed to keep up with the equity market updates. The debt instruments are still not satisfactorily utilized by businesses, issuers and investors.

"Many entities will show strong appetite for that type of finance, when investment environment becomes more favorable and also if various investment channels are availed to generate relatively fixed returns and ensure stability on the long term," he added.

He also ruled out the CMA intervention in pricing securities and debt instruments, adding that the Saudi market regulator is also keen to provide high transparency for all investors.

Abdulrahman Al-Haseen, head of the debt instruments IPO unit at the CMA, said listing the new instruments helps potential Saudi-listed issuers to float their instruments in an initial public offering rather than a private placement.

The IPO requirements were modified to allow listed companies to set up special purpose vehicles for the issuance of debts, he added.

Mohammed Al-Mady, head of mergers and acquisitions unit at the CMA, said the market regulator has aimed to develop all regulations in line with the best practices applicable in the global debt markets.

Tadawul will list 45 primary and secondary debt instruments, comprising a broad range of government development bonds, floating rate bonds, and Saudi government sukuk, with a value of SAR 204 billion and SAR 385 billion, and maturity dates ranging between five, seven, and ten years, Argaam reported.