Saudi Arabia ramps up bonds to help fund MBS projects
4 Min Read
The nation has already issued more Eurobonds in 2024 than any other year since 2017, and it may beat the previous record of $21.5 billion if it returns to the market in the next months.
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Crown Prince Mohammed bin Salman of Saudi Arabia takes his seat ahead of a working lunch at the G20 summit on November 15, 2022. (AP)
Saudi Arabia is attempting to borrow its way out of a budgetary bind caused by the need to fund massive projects pushed by Crown Prince Mohammed bin Salman (MBS) to restructure the economy.
According to Bloomberg statistics, a $5 billion sukuk, or Islamic bond, issued on Tuesday, increased the Kingdom's total overseas debt sales this year to $17 billion, the most of any emerging-market sovereign.
The nation has already issued more Eurobonds in 2024 than any other year since 2017, and it may beat the previous record of $21.5 billion if it returns to the market in the next months, as some analysts predict.
Zeina Rizk, partner and co-head of fixed income at Amwal Capital Partners in Dubai, explained that they "have a lot of spending needs."
There is a similar pattern with local debt. This year, the Saudi government sold around $25.5 billion in riyal notes compared to slightly under $20 billion at the same time in 2023 as it tries to collect more funds for megaprojects from oil exports and foreign direct investment.
Despite dramatic production cutbacks by the de facto leader of the OPEC+, oil remains far lower than what the monarchy requires to balance its budget.
Brent now trades at roughly $83 per barrel. Bloomberg Economics forecasts that Saudi Arabia will require $108 to break even if its sovereign wealth fund's domestic expenditure, which is virtually entirely dedicated to the crown prince's Vision 2030 program, is included.
That has altered Saudi Arabia's budgetary outlook, which, until late 2023, had been anticipating budgetary surpluses for several years.
However, it now predicts shortages until at least 2026, which may make the monarchy a regular issuer in foreign bond markets.
Farouk Soussa, an economist at Goldman Sachs Group Inc., stated in an analysis on May 22 that Saudi Arabia may issue $20 billion in foreign bonds this year and between $13.5 billion and $14.5 billion in the next two years.
In quest of funds, Saudi developers plan private NEOM tour for bankers
Last month, Saudi Arabia's flagship developmental project, Neom, turned into a never-ending cash blackhole as the country looks to raise even more money for the stalled project.
Hundreds of bankers arrived at Saudi Arabia's Neom project as developers look for further funds to tap into, according to Bloomberg. Neom’s Chief Executive Officer Nadhmi al-Nasr hosted the financiers along with other top government officials, people familiar with the matter told the outlet.
The invitees also visited Saudi Arabia's odd and "futuristic" The Line area, a long strip that would supposedly be developed into a linear city. According to Bloomberg, the event was not to be publicized and aimed to incentivize bankers to invest in the project.
Al-Nasr, seeking to sell them the idea, planned to show potential investors the work on the ground in Neom, rather than have them depend on virtual reality videos to make their minds up.
In total, Neom's individual projects will need around $1.5 trillion for their completion, as the Kingdom hopes to build a mountain ski resort and an artificial lake, as well as an industrial development that floats on the Red Sea.
The mobilization to secure the needed funds comes after Riyadh scaled back its medium-term ambition for Neom, as the government has dropped its expected residents in The Line from 1.5 million in 2030 to 300,000.
