Saudi Arabia’s Public Debt Figures, in the perspective of its int’l bond-holders

Fixed income investors, exposed to the Saudi international debt, may expect the coming days to carry positive news, both in terms of Saudi Arabia reduced deficit and the decrease, in the leverage ratio.

Where investors are valuing Riyadh’s success, in fighting the pandemic, being able to contain it and resuming the gradual growth of the economy, they much more enthusiastic, against the backdrop of  the higher average oil prices, and reflection on the listed debt instruments.

December budget figures, in the pipeline, for the time being, are expected to reveal a much more clear discipline, in the public finances management, as such a bold step is very significant for sovereign debt holders and credit rating agencies, alike.

Noteworthy, the Sovereign Debt Instruments Index denominated in the US Dollar, and managed by Bank of America Merrill Lynch, has gained 0.03% during the past 11-month, compared to 2.3% loss for its counterpart index of countries, with the same credit rating, as Saudi Arabia.

2022 Domestic, int’l debts

Presumably, the coming year, shall be a maturity date for domestic debts estimated, at SR57.4 billion, but the sovereign issuer has displayed an after-thought, preferring to take advantage of the favorable market conditions prevailed, in late October, consequently, it decided to refinance SR32.9 billion of those debts, in a proactive step to avoid a foreseen or projected rise, in the funding costs, more than they stand now, next year.

Thus, the local debt due in the coming year, following the second early purchase, will slip to as much as SR24.4 billion.

As for the external debt, in 2022, there shall be a maturity estimated, at SR18.1 to repay the principal of international debts (including April maturity, in which the principal and the remaining debt service, mainly the interest, shall be repaid for 5-year dollar-denominated sukuk (with a return of 2.89%), issued at a value of $4.5 billion (equivalent to SR16.8 billion).

Projected financing operations for 2022

Financing operations expected, in 2022, were estimated, in September, however, they a  projected to decrease to SR127 billion.

Such a development has taken place, grace to the successful refinancing of SR32.9 billion of those debts, during October.

Similarly, it is expected that the budget figures updates, in December, would reveal details of the financing operations, expected for the year to come.

Where it is expected to confirm that as much as SR52 billion, will be spent to cover the deficit for the coming year.

Meanwhile, the remaining amount of SR42.6 billion, will be used to repay the principal (in other words, issuing new debts in order to repay the principal, in place).

External borrowing strategy

As for Saudi Arabia’s external borrowing strategy for the coming year, it revolves around enabling it, to borrow most of financing needs, during the first half, according to market conditions, to reduce financing risks, allow government agencies and the public sector to entertain the option of deciding the appropriate time, for their foreign debts’ issuance, during a year-long period.