Saudi Arabia could go for more local currency bonds: Analyst

Saudi Arabia is likely to issue more bonds denominated in Saudi Riyal (SAR) in its own local market instead of issuing dollar denominated bonds / sukuk which needs to be sold to a wider international investor base, Anita Yadav, Head of Fixed Income Research, Emirates NBD Bank, told Argaam on Tuesday.

She said despite the widespread sell off in Emerging Markets assets, GCC bonds are benefiting from rising oil prices, improving economic conditions and thinning new issue pipeline.

“Bond prices get impacted by demand and supply dynamics. Bond prices fall when supply is more than demand and vice-versa. Lesser issuance of new bonds reduces total supply of bonds and sukuk and this in turn supports higher bond prices. All in all, while lower new issuance reduces the market size and is not good for liquidity in the market, it is positive for the bond prices and helps to improve investors’ total returns,” she said.

A day before, Emirates NBD’s ‘GCC Credit Monitor’ report noted, the rising oil prices are boosting credit profiles of GCC sovereigns and GREs and this in turn is helping to reduce credit rating downgrades.

“After months of hiatus, primary market finally has few issuers seeking to raise funding,” the report added.

For example, it says, ADIB is on the road with a possible offering of Tier 1, perpetual, non-call five year benchmark sized sukuk and DP World is looking to raise sufficient funds to refinance upcoming maturity of its $750 million of JAFZA 19s. Al Hilal continues to roadshow for a Reg S sukuk and Aldar Properties has also mandated banks for benchmark sized sukuk.

“Looking ahead, the full year new issues in 2018 are likely to fall short of original forecast of circa $85 billion as rising oil revenues limit the government’s funding needs,” it added.

Write to Sunil Kumar Singh at sunil.kumar@argaamplus.com