Saudi Arabia raises $12bn from bonds to meet future funding needs

The kingdom continues borrowing spree amid heavy spending in new projects as it plans to host 2034 Fifa World Cup and Expo 2030

A spectacular display of drones and fireworks illuminate Riyadh in December, celebrating Saudi Arabia’s confirmation as the host of the 2034 Fifa World Cup. AFP

Saudi Arabia has completed the issuance of bonds worth $12 billion, as the kingdom continues to tap international debt markets to raise money amid economic transformation plans.

The total order book for the three-tranche bond – valued at $5 billion, $3 billion and $4 billion – reached $37 billion, with an oversubscription of three times of the total offering, the National Debt Management Centre said in a statement on Tuesday.

“This transaction is part of NDMC's strategy to diversify the investors' base and meet the kingdom's financing needs from international debt capital markets efficiently and effectively,” NDMC said.

“The bid-to-cover ratio reflects the strong demand of the kingdom's issuances, confirming the investors' confidence in the strength of the kingdom's economy and its investment opportunities future.”

There is scope for further borrowing, according to Ralf Wiegert, head of Mena Economics at S&P Global Market Intelligence.

The Saudi government “still has room for more borrowing in the next two to three years before more difficult decision have to be taken, such as cutting back spending for one of the mega-projects or for investments in facilities related to the sports events that will take place in Saudi Arabia in the next 10 years”, he told The National.

The latest offering comes after Saudi Arabia this week approved the annual borrowing plan for the fiscal year 2025, with funding needs for the year estimated at 139 billion Saudi riyals ($37 billion), including covering the anticipated budget deficit of 101 billion riyals and to repay principal debt amounting to 38 billion riyals.

Last week, the kingdom also announced that it raised $2.5 billion from three foreign banks to finance its budgetary needs.

The Public Investment Fund also plans to raise $7 billion from its first murabaha credit facility to diversify its funding sources to boost investments, it said on Monday. The financing is part of the sovereign wealth fund's medium-term capital-raising strategy.

“The current issuance was in US dollars, however, we would not be surprised if they looked to diversify their subsequent borrowing in other currencies to diversify their sources of funds. Their strong credit rating and the recent upgrade by Moody’s would help the kingdom raise money at favourable rates,” Chiro Ghosh, vice president of financial institutions at Bahrain-based Sico Bank, told The National.

“After the issuance, Saudi Arabia’s public sector debt would still be less than 30 per cent of its gross domestic product, which is a very favourable matrix relative to most of its global peers.”

In November, global credit ratings agency Moody’s Investors Service upgraded Saudi Arabia’s rating to “Aa3" from “A1”, with a stable outlook as the kingdom continues to focus on diversifying its economy and boost its non-oil sector.

“Over time, these advancements are expected to reduce Saudi Arabia's exposure to oil market developments and long-term carbon transition on its economy and public finances.” Moody’s said at the time.

The ratings agency expects the non-oil private sector GDP of Saudi Arabia to expand 4 per cent to 5 per cent in the coming years, positioning it among the highest in the GCC region.

Economic transformation

Saudi Arabia, the Arab world’s largest economy, is undergoing a massive economic transformation, as part of vision 2030 programme, with new projects in infrastructure, tourism, real estate and other sectors.

It is building the $500 billion Neom project at the Red Sea, featuring residential buildings and tourist attractions, as well as undertaking new projects in Riyadh.

Opec’s top oil exporter is also hosting Fifa World Cup in 2034 and Expo 2030, which requires massive funding to build new facilities and venues as thousands of people are expected to visit the kingdom during the two mega events.

2025 forecast

The International Monetary Fund projects Saudi Arabia’s economy to expand 4.6 per cent this year, after a projected growth of 1.5 per cent in 2024.

“The government aims to focus on strategic spending in 2025, with mega-projects like the Neom city already under way, along with priority investments like the Asian Games in 2027 and the recently announced Fifa World Cup in 2034,” Vijay Valecha, chief investment officer at Century Financial, said.

Saudi Arabia requires oil prices to be more than $90 a barrel to balance its finances, he added, citing IMF data.

“With the Brent prices trading around $76 per barrel, the Saudi government’s budget is forecast to remain in deficit for the next few years. This indicates to the kingdom’s need to rely more on external borrowing to fund its mega-projects,” Mr Valecha said.