Saudi Arabia is poised to launch a Sukuk and bond market this week, a step analysts said reflected the OPEC kingpin's push to further develop its debt market at a time when the global meltdown is drying up credit and restricting liquidity. The new market's launch on June 13 comes as Saudi Arabia, home to the world's largest proven reserves of crude oil and the Arab world's largest economy, forges ahead with a slew of infrastructure projects that officials say will cost about US$400 billion (Dh1.47 trillion) over the next five years.
It also marks a broader push within the Gulf Arab region to try to encourage a shift away from bank lending and the development of a new debt market. "If there is anything that they're realising, it's that the size of the projects are burdening the banks and one cannot expect, going forward, that the banks will be able to shoulder the burden," said John Sfakianakis, chief economist with SABB, the HSBC affiliate formerly known as Saudi British Bank.
"These are long term projects that require long term financing. They need to diversify the financing and move away from bank financing as the sole way to create debt in the market," said Mr Sfakianakis. The Saudi stock exchange said the new market would be launched on June 13 and would allow investors to work with brokerage firms to buy and sell conventional bonds, as well as Sukuk or Islamic bonds.
"It's a very important way for increasing the vehicles for private companies ... to raise capital. It's a positive sign for that, as well as for the widening of the capital markets," said Monica Malik, the Dubai-based chief economist for Middle Eastern investment bank EFG Hermes. While countries such as Saudi Arabia, the United Arab Emirates and Qatar have significant cash surpluses built up from oil's rally earlier last year, the governments of these Gulf nations have become increasingly aware of the risks of relying overwhelmingly on capital markets and banks to stimulate growth.
"We've seen a number of sovereign governments like Abu Dhabi, raising money through sovereign debt, even though they haven't needed to," said Ms Malik. "Even though they have very significant financial reserves, this is more for creating a yield curve than meeting government financial needs." * AP