Saudi Real Estate Refinance Co. raises $2bn in debut international sukuk

RIYADH: Saudi Arabia’s domestic corporate bond and sukuk markets are set to gain further momentum, fueled by Vision 2030 investments and ongoing regulatory reforms, according to a new analysis by S&P Global. 

In its latest report, the ratings agency noted that the Kingdom’s domestic debt markets have grown steadily over the past five years, with corporate bonds and sukuk issuance more than doubling to $37 billion in the first quarter of 2025, up from $15.5 billion in the same period of 2020. 

The findings come as Saudi Arabia leads the Gulf Cooperation Council in primary debt issuance. In the first quarter of 2025, the Kingdom accounted for over 60 percent of all GCC sukuk and bond activity, raising $31.01 billion through 41 offerings, according to Kuwait Financial Center, also known as Markaz. 

Timucin Engin, credit analyst at S&P Global Ratings, said: “The development of Saudi Arabia’s overall financial markets continues to accelerate due to large-scale Vision 2030 investments, regulatory reforms, initiatives to attract overseas funding, and investments in capital markets infrastructure over the past decade.” 

He added: “The markets’ growth will help companies to diversify their funding bases and secure long-term capital.” 

In January, an analysis by S&P Global projected that global sukuk issuance would reach between $190 billion and $200 billion in 2025, driven by increased activity in key markets such as Saudi Arabia and Indonesia. 

While the Kingdom’s domestic market has expanded, S&P noted that issuance remains concentrated, with Saudi financial institutions accounting for 65 percent of outstanding corporate debt as of May 25, followed by nonfinancial state-owned entities at 25 percent and private-sector non-financial corporates at 10 percent. 

The report highlighted the role of the Saudi stock exchange, whose data show that total domestic sovereign and non-sovereign issuance stood at 20.7 percent of gross domestic product in the first quarter of 2025.

Corporate issuance alone rose to 3.4 percent of GDP, up from 1.9 percent in 2020, though still below levels seen in more mature emerging markets. 

S&P Global also cautioned that the potential long-term structural growth of Saudi Arabia’s domestic corporate bond market could be affected if geopolitical tensions in the region escalate. 

“We also note that the sharp escalation of the Israel-Iran conflict creates high uncertainty for the markets and their outlook in the Middle East,” said the report. 

It further noted that Saudi Arabia’s equity markets have developed more rapidly than its debt markets, as the country’s robust banking system has historically provided competitive financing for non-financial corporates, thereby crowding out interest in debt capital markets. 

Developing debt market 

According to the report, a developed local debt market enables issuers to access different pools of capital with varied terms and conditions suited to their financing needs. 

It also complements the equity market by providing financial solutions for local investment activities, thus supporting the broader economy. 

Additionally, a local debt market attracts both domestic and foreign investors, creating a deeper and more diversified investor base that should enhance funding availability for issuers. 

In April, Fitch Ratings reported that Saudi Arabia’s debt capital market continued its upward trajectory in the first quarter of 2025 despite geopolitical tensions and economic headwinds. 

According to Fitch, the market reached $465.8 billion by the end of March, marking a 16 percent year-on-year increase, with sukuk accounting for 60.4 percent of the total. 

The Kingdom’s debt market is expected to surpass $500 billion in outstanding value by the end of 2025, supported by strong economic fundamentals, diversified funding strategies, and sustained progress under Vision 2030.

In December, Kamco Invest projected that Saudi Arabia will lead the GCC in bond maturities over the next five years, with around $168 billion in Saudi bonds expected to mature between 2025 and 2029 — highlighting the Kingdom’s growing role in the region’s debt landscape. 

S&P Global, however, pointed out that liquidity and foreign participation remain limited in Saudi Arabia’s financial markets. 

“Saudi financial institutions are the main investors and tend to hold the securities until maturity, which explains the limited secondary trading activity,” said the report. 

It added: “Despite some growth over the past few years, foreign investors, including investors from the Gulf Cooperation Council region accounted for less than 2 percent of the outstanding listed and unlisted issuance as of first-quarter 2025.” 

Key initiatives 

S&P Global also outlined major initiatives undertaken by Saudi authorities to drive capital market development. 

In 2015, Saudi Arabia resumed issuing instruments denominated in Saudi riyals, marking a return to domestic debt markets. Two years later, the Ministry of Finance — through the National Debt Management Center — launched the riyal-denominated sukuk program. 

In 2018, NDMC partnered with five local financial institutions as primary dealers to broaden the investor base and improve liquidity in government securities. More local dealers were added in 2021, followed by five international banks in 2022. 

Most recently, NDMC raised SR2.355 billion ($628 million) through its June sukuk issuance. In May, the Kingdom raised SR4.08 billion via riyal-denominated offerings, a 9.09 percent increase from April and a 54.5 percent jump compared to March. 

In parallel, the Financial Sector Development Program was launched in 2018 to advance the Kingdom’s financial markets, with a particular focus on debt capital markets.

Tadawul was restructured into a holding group in 2021 to streamline operations and governance. That same year, a partnership between Edaa and Euroclear enabled international investors to access the Saudi sukuk and bond markets, improving trading, clearing, and settlement processes. 

S&P also noted continued efforts by Saudi authorities to enhance the regulatory environment, including the enactment of an updated investment law in 2024. 

The law provides greater protections for investors, including guarantees on fair treatment, property rights, intellectual property safeguards, and the free movement of capital.