CMA: Saudi Sukuk Market Surpasses SAR30 Billion Growth

The Capital Market Authority (CMA) of Saudi Arabia has announced that the corporate sukuk and debt capital market has exceeded SAR30 billion in growth since 2019, reflecting the Kingdom’s successful efforts to deepen its financial markets in line with Vision 2030. According to an official press release issued by the CMA, the sukuk and debt capital market achieved an annual growth rate of 7.9% since 2019, with unlisted issuances growing at 9.6% annually. The size of the corporate sukuk and debt capital market reached SAR125 billion by the end of 2023, up from SAR95 billion at the end of 2019.

Context and Background

Saudi Arabia has been actively developing its capital markets as part of the Financial Sector Development Program (FSDP), one of the key initiatives of Vision 2030. The FSDP aims to create a diversified and advanced financial sector that supports economic growth and reduces reliance on oil revenues. A critical component of this effort is the development of the sukuk and debt capital market, which provides an alternative financing channel for both public and private sector projects.

To unify efforts and set strategic directions, the FSDP established the Sukuk and Debt Instruments Market Development Committee, chaired by the Chairman of the CMA. This committee has been instrumental in implementing initiatives to deepen and enhance liquidity in the market, resulting in significant growth in the number of issuances and issuers, increased liquidity, and a more diverse investor base.

Key Details

The CMA’s press release highlights several key developments. The unlisted sukuk and debt capital market grew by approximately SAR33 billion since 2019, reaching about SAR105 billion in 2023, compared to SAR72 billion in 2019. The number of companies issuing debt instruments has tripled by the end of 2023 compared to the end of 2019. Trading activity has also surged, with a traded value of SAR2.5 billion in 2023, up from SAR0.8 billion in 2019, and the number of executed transactions rose to 36,961 in 2023, an 893% increase from 3,722 in 2021.

Fahad bin Hamdan, Deputy Assistant of Financing and Investment at the CMA, stated that the CMA aims to make the sukuk and debt capital market prosperous and encouraging for both governmental and non-governmental issuances. He noted that the share of individual investors rose from about 1% at the end of 2021 to approximately 12.5% by the end of 2023, largely due to a successful public offering of sukuk in the fourth quarter of 2022 that attracted over 125,000 individual investors. Meanwhile, the share of banks declined from roughly 60% to 48%, and government entities dropped from 20% to 13%, while investment funds increased from about 12% to 15%.

Bin Hamdan also emphasized that the CMA will continue to develop the corporate sukuk and debt capital market in collaboration with the Sukuk and Debt Instruments Market Development Committee and stakeholders, implementing 16 strategic initiatives to enhance attractiveness and efficiency. These initiatives include easing regulatory frameworks for debt instrument offerings, introducing a sustainable bonds regulatory framework, removing withholding tax requirements for local companies’ debt instrument issuances, and organizing the sukuk and debt instruments market industry.

Implications and Impact

The growth of the sukuk and debt capital market has significant implications for Saudi Arabia’s economy and its regional and international standing. A deeper and more liquid debt market provides companies with greater access to financing, reducing their dependence on bank loans and enabling them to fund expansion and innovation. It also attracts foreign investment, as a more diverse investor base and improved regulatory environment make the market more appealing to international investors. This, in turn, supports the development of Saudi Arabia’s financial sector and enhances its competitiveness as a regional financial hub.

Moreover, the increased participation of individual investors democratizes access to investment opportunities and fosters a savings culture, aligning with the goals of Vision 2030 to increase household savings and financial inclusion. The market’s growth also supports the development of sustainable finance, as the CMA plans to introduce a regulatory framework for sustainable bonds, which will enable companies to fund environmentally and socially responsible projects.

Vision 2030 Alignment

The development of the sukuk and debt capital market is a cornerstone of Vision 2030’s Financial Sector Development Program, which seeks to create a diversified and resilient economy. By providing alternative financing options, the market supports the growth of the private sector, encourages investment, and reduces the Kingdom’s reliance on oil. The CMA’s ongoing efforts to enhance the market’s attractiveness and efficiency, including the implementation of 16 strategic initiatives, are directly aligned with Vision 2030’s objectives of increasing the private sector’s contribution to GDP, boosting foreign direct investment, and establishing Saudi Arabia as a global investment powerhouse. As the market continues to evolve, it will play a vital role in financing the Kingdom’s ambitious projects and driving sustainable economic growth for years to come.

20 Questions

Q1. What is the annual growth rate of the sukuk and debt capital market in Saudi Arabia since 2019?

A1. The market has achieved an annual growth rate of 7.9% since 2019, with unlisted issuances growing at 9.6% annually, reflecting robust development in the Kingdom’s financial sector.

Q2. How much has the corporate sukuk and debt capital market grown in value since 2019?

A2. The market grew by approximately SAR33 billion, reaching about SAR105 billion in 2023 for unlisted issuances, while the overall corporate market reached SAR125 billion, up from SAR95 billion in 2019.

Q3. What is the role of the Financial Sector Development Program in developing the sukuk market?

A3. The FSDP, a Vision 2030 initiative, established the Sukuk and Debt Instruments Market Development Committee to unify efforts, set strategic directions, and enhance the market’s liquidity and diversity.

Q4. Who chairs the Sukuk and Debt Instruments Market Development Committee?

A4. The committee is chaired by the Chairman of the Capital Market Authority (CMA), ensuring high-level oversight and strategic alignment with the FSDP’s objectives.

Q5. How has the number of issuers changed since 2019?

A5. The number of companies issuing debt instruments has tripled by the end of 2023 compared to 2019, indicating growing confidence and participation in the sukuk and debt market.

Q6. What was the traded value in the sukuk and debt market in 2023?

A6. The traded value reached SAR2.5 billion in 2023, a significant increase from SAR0.8 billion in 2019, with a record number of executed transactions.

Q7. How many transactions were executed in 2023?

A7. There were 36,961 executed transactions in 2023, compared to 3,722 in 2021, representing an increase of 893%.

Q8. What is the CMA’s vision for the sukuk and debt capital market?

A8. The CMA aims to make the market prosperous and encouraging for governmental and non-governmental issuances, developing a modern regulatory environment to attract local and foreign investors.

Q9. How has the investor base evolved in recent years?

A9. Individual investors’ share rose from 1% in 2021 to 12.5% in 2023, while banks’ share declined from 60% to 48%, and investment funds increased from 12% to 15%.

Q10. What event attracted over 125,000 individual investors?

A10. A successful public offering of sukuk in the fourth quarter of 2022 attracted over 125,000 individual investors, significantly diversifying the investor base.

Q11. Which sectors are most active in issuing sukuk and debt instruments?

A11. The financial sector is the most active, followed by the energy sector and public utilities, aligning with global market trends.

Q12. What are some of the strategic initiatives planned by the CMA?

A12. The CMA plans 16 strategic initiatives, including easing regulatory frameworks, introducing sustainable bonds, removing withholding tax on local issuances, and organizing the market industry.

Q13. How does the CMA measure the performance of these initiatives?

A13. The CMA monitors indicators such as the volume of funds collected from sukuk offerings as a percentage of total public financing, debt instruments as a percentage of GDP, turnover, and foreign ownership.

Q14. What challenges does the CMA aim to overcome?

A14. The CMA seeks to address challenges facing issuers, investors, and infrastructure by launching initiatives to ease regulations, introduce sustainable bonds, and remove tax barriers.

Q15. How does the growth of the sukuk market benefit the Saudi economy?

A15. It provides alternative financing for projects, reduces reliance on bank loans, attracts foreign investment, and supports economic diversification and growth.

Q16. What is the significance of individual investor participation?

A16. Increased individual participation democratizes investment, fosters a savings culture, and supports financial inclusion, aligning with Vision 2030 goals.

Q17. What is the CMA’s plan for sustainable finance?

A17. The CMA intends to introduce a regulatory framework for sustainable bonds, enabling companies to fund environmentally and socially responsible projects.

Q18. How does the sukuk market support Vision 2030?

A18. It supports the Financial Sector Development Program by diversifying financing sources, boosting private sector growth, and enhancing Saudi Arabia’s position as a global investment hub.

Q19. Where can more information about the strategic directions be found?

A19. The Document for the Strategic Directions to Develop Sukuk and Debt Capital Market can be viewed on the CMA’s website, www.cma.org.sa.

Q20. What is the outlook for the sukuk and debt capital market?

A20. With ongoing initiatives and a focus on enhancing attractiveness and efficiency, the market is poised for continued growth, supporting Saudi Arabia’s economic transformation and Vision 2030 objectives.

---