KSA Debt Update

The Kingdom of Saudi Arabia (KSA) currently has $30 billion in dollar denominated bonds and $9 billion in USD sukuk owed to international investors. This represents circa 8% of the government’s foreign reserves in Dec 2017 and circa 5.6% of GDP. Adding the debt issued in SAR currency and the debt of government guaranteed subsidiaries, total government debt / GDP is currently circa 17%. While the debt is expected to continue increasing over the coming years to fund budget deficits, the KSA government’s aim is to keep debt / GDP levels to below 30%. KSA is rated A-/stable, A1/stable and A+/stable by S&P, Moody’s and Fitch respectively.

KSA Debt

To fund its budget deficits, KSA began raising debt in the local currency market via issuance of SAR denominated sukuk in 2015/16. In order to preserve liquidity in the local banking system, SAMA (Saudi Arabia Monetary Authority) has since gradually reduced issuance of T-Bills.

• KSA currently has debt obligation of USD $91.2bn made of a) bonds (including TBs) of $56.15bn; b) loan of $10bn and c) committed interest expense of $25.1bn.
• 77% of the debt obligation is denominated in USD with remainder in SAR.
• 100% of the debt is at fixed interest rate and the earliest USD bond maturity is not until October 2021.

KSA Sovereign Debt

Source: Bloomberg, Emirates NBD Research

KSA tapped international capital markets in 2016 and 2017, raising $17.5 billion and $21.5 billion respectively. With oil prices expected to remain in the range of $50/b - $70/b over the coming few years, KSA will need to continue tapping debt markets to fund its budget deficits. Its 2018 budget indicates need to raise SAR 117 billion ($31.2 billion) in debt which we expect to be sourced from USD as well as SAR denominated markets.

Despite expectations of large new issues, KSA sukuk and bonds are currently well bid in the secondary market. 

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