Saudi corporates’ funding mix is evolving

Saudi corporates’ funding mix is evolving, says Fitch Ratings in a new report, with debt capital market (DCM) issuances for corporates increasing noticeably – averaging a 10% increase 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.

DCM activity remains predominantly Sukuk-based – these represented nearly 100% of corporates’ fixed-income issuances in 2021 (2020: 66%). Local Sukuk issuances (mostly unrated) have steadily grown in the local capital market, totalling 41% of DCM activity in 2021 (2019: 5%). We expect local and international issuance to continue growing in 2022–2023. We expect the large Islamic banking sector to drive domestic sukuk growth, increasing the contribution of DCM and equity capital markets to capital structure in the medium term. However, challenges such as low-cost bank funding and still-developing regulatory framework may slow capital structure diversification.

Saudi corporates have also raised SAR32 billion through IPOs and equity proceeds on the MENA’s largest stock exchange. Equity proceeds represented nearly 74% of total funds raised on the debt and equity capital markets in 2021, a key differentiating factor for Saudi corporates compared to regional peers. To avoid distortions, the dashboard excludes fixed-income and equity issuances raised by Saudi Arabian Oil Company (A/Stable).