SAUDI ARABIA: Fitch Ratings in a report noted that Saudi corporates’ funding mix is evolving, with debt capital market (DCM) activity being predominantly Sukuk-based as nearly all of corporates’ fixed-income offerings were Sukuk in 2021, against 66% in 2020. DCM issuances for corporates increased, averaging 10% year-on-year.
“We expect DCM issuances to continue growing in the near term, supported by the private sector’s increased contribution to the overall economy. In a regulatory push to diversify funding for corporates, the Saudi government is widening the investor base and creating a sustainable asset class. Bank funding represented nearly 98% of Saudi corporates’ capital structure in 2021, with the remainder being funded by equity and debt instruments,” said Fitch.
Local and international Sukuk offerings will continue to grow in 2022–23, with Fitch expecting the Islamic banking sector to drive domestic Sukuk growth.
However, challenges such as low-cost bank funding and a still-developing regulatory framework may slow capital structure diversification.