The Sukuk and debt capital market in Saudi Arabia has achieved an annual growth rate of 7.9% since 2019, with this growth primarily concentrated in unlisted issuances, which have grown at an annual rate of 9.6%. Additionally, the number of issuers has increased alongside the market's growth. The unlisted sukuk and debt capital market has grown by approximately SAR 33 billion since 2019, reaching approximately SAR 105 billion in 2023, compared to SAR 72 billion in 2019.
The Capital Market Authority (CMA) continues its efforts to develop the sukuk and debt capital market as one of the important financing alternatives that the capital market provides to finance public and private sector projects. Given the significant importance of this market as a fundamental element in economic growth and activities, the Financial Sector Development Program (FSDP) formed the "Sukuk and Debt Instruments Market Development Committee", chaired by the Chairman of CMA, to serve as a sub-committee of the program. The aim is to unify efforts and set strategic directions to develop the sukuk and debt capital market, contributing to the goal of the Financial Sector Development Program to create an advanced capital market, particularly in relation to the sukuk and debt capital market.
Since its establishment, the Sukuk and Debt Instruments Market Development Committee has implemented several initiatives to deepen and enhance the liquidity of the sukuk and debt capital market. These initiatives have resulted in positive developments concerning the growth in the number of issuances and issuers, increased liquidity, and a more diverse investor base. The size of the corporate sukuk and debt capital market reached SAR 125 billion by the end of 2023, compared to SAR 95 billion by the end of 2019. Additionally, the number of companies issuing debt instruments has tripled by the end of 2023 compared to the end of 2019.
In terms of liquidity, the market experienced rapid growth in the value of trades and the number of executed transactions, with a traded value of SAR 2.5 billion in 2023 compared to SAR 0.8 billion in 2019, marking a record number of executed transactions.
From his side, the CMA's Deputy Assistant of Financing and Investment, Fahad Mohammed bin Hamdan, stated that CMA aims to make the sukuk and debt capital market prosperous and encouraging for both governmental and non-governmental issuances. CMA seeks to develop its legislative and regulatory environment by providing modern investment mechanisms and products to attract and enable investments from both local and foreign investor groups.
Regarding the diversity of the investor base in the corporate sukuk and debt capital market, Fahad bin Hamdan 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. This increase was due to the successful completion of a public offering of Sukuk in the fourth quarter (Q4) of 2022, which attracted over 125,000 individual investors, thereby supporting the diversification of the investor base in the domestic sukuk and debt capital market.
He added, "At the same time, the share of banks declined from roughly 60% at the end of 2021 to 48% at the end of 2023. The share of government entities also dropped by 7%, from 20% at the end of 2021 to 13% in 2023. Meanwhile, the share of investment funds increased from about 12% at the end of 2021 to 15% at the end of 2023. Regarding the number of executed transactions in the sukuk and debt capital market, both listed and unlisted, rose to 36,961 in 2023, compared to 3,722 in 2021, an increase of 893%.
Looking at the sectors issuing sukuk and debt instruments at the end of 2023, the financial sector emerged as the most active in using the sukuk and debt capital market as a financing channel, aligning with global market trends. It was followed by the energy sector and the public utilities sector.
Bin Hamdan emphasized that the Capital Market Authority will continue to develop the corporate sukuk and debt capital market in collaboration with the members of the Sukuk and Debt Instruments Market Development Committee and stakeholders. This will be achieved through the implementation of a portfolio of initiatives, including 16 strategic initiatives, aimed at enhancing the attractiveness and efficiency of the sukuk and debt capital market for issuers and investors and boosting its regional and international competitiveness. The focus will be on developing the legislative environment, incentives, and infrastructure to encourage issuers to issue sukuk and bonds locally. Additionally, efforts will be made to enhance trading in these capital and encourage investor participation. To measure the performance of the strategic initiatives, the CMA will monitor several strategic indicators, including the percentage of the volume of funds collected from the offering of Sukuk and debt instruments as a percentage of total public financing, the size of debt instruments as a percentage of GDP, debt instruments turnover, and the percentage of foreign ownership in debt instruments.
Bin Hamdan concluded that various solutions will be pursued to overcome the challenges facing issuers, investors, and the infrastructure to fully benefit from the sukuk and debt instruments market opportunities for financing domestic companies. This will be achieved by launching several initiatives, such as easing regulatory frameworks for debt instrument offerings, listing, and registration; Introduce sustainable bonds regulatory framework and incentives; removing requirements for withholding tax on local companies' debt instrument issuances; organizing the sukuk and debt instruments market industry; and studying the feasibility of expanding the REPO framework to include DCM.
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The Document for the Strategic Directions to Develop Sukuk and Debt Capital Market
