Success of SAR-Denominated Bonds Reflects Increasing Demand For Debt Issues And Growing Saudi Capital Market

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The success of Gulf International BankGulf International Bank's (GIBGIB) Saudi Riyal-denominated bond issue in the Kingdom of Saudi Arabia earlier this month has given a positive signal to the country's financial market.

Despite the prevailing global and regional market conditions, GIBGIB's final bond issue size had been increased from SAR 1.5 billion to SAR 2 billion due to the substantial demand from investors. The order book was closed with orders totalling around SAR 5 billion, representing an oversubscription of more than three times.

Market analysts say this bond issue reflects the increasing appetite for debt issues and the rapidly growing financial market in the Kingdom of Saudi Arabia, which has so far managed to curtail the negative impact of the global financial crisis.

"Saudi Arabia enjoys very strong credits in the region, given its sizable oil and gas reserves, attractive demographics and prudent economic policies. Those factors, coupled with large foreign reserves built over the years and very low external debt-to-GDP ratio, will enable it to withstand further possible shocks in the near term," explained Dr. Yahya A. Alyahya, GIBGIB's Chief Executive Officer.

"In addition, Saudi Arabia's prudent macroeconomic policy management and a fixed exchange rate peg underpin its economy's stable base. The country's 2009 budget, at SAR 475 billion, is the largest in the Kingdom's history and aimed at focusing more on stimulating the local economy rather than spending abroad," he added.

Moreover, Saudi Arabia enjoys the lowest credit default swap (CDS) rate in the region and one of the lowest 20 globally. Although Saudi Arabia's CDS peaked at 335 in February 2009 when the financial crisis intensified, it has eased sharply to 74 in the third quarter of 2009 and is anticipated to continue grinding lower as signs of recovery and stability start taking hold of the GCC region, helped by oil prices stabilizing or pushing higher from current elevated levels.

"We believe Saudi Arabia's financial market will witness increased activities in 2010, with more bond issues from sovereign and corporate entities. We will also see more initial public offerings (IPOs) by companies planning to expand their businesses and shareholding bases. The need to raise money for project finance will also intensify," added Dr. Alyahya.

According to the latest estimates, the value of ongoing and planned projects in Saudi Arabia are estimated at US$ 586 billion, representing around 128 per cent of Saudi Arabia's GDP. This will reinforce the country's position as the key growth and investment driver across for the GCC and the Middle East.

The Saudi Arabian Monetary Agency (SAMA) has stated that US$ 400 billion of public investment (including oil sector investment) is planned over the next five years. Also, the Kingdom has the largest real estate market in the GCC region, and it has avoided the "herd mentality" of that other Gulf countries followed during the boom period of 2003 - 2008 which has led to sever pressure on this sector in those countries.

Besides sound economic fundamentals, Saudi Arabia is the easiest place to do business in the entire MENA region, according to the World Bank. Among all Arab countries, the Kingdom is the easiest place to register property, get credit, and start a business; and it is the 7^th easiest place in the world to pay taxes. The investment environment in the Kingdom reflects traditions of liberal private enterprise policies, while the new Foreign Investment Law allows 100 per cent foreign ownership of projects and real estate. Moreover, there are no restrictions on foreign exchange and outgoing money transfers.

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For further information, please contact:
Mr. Abdulla Naneesh
Corporate Communications
Kingdom of Bahrain
Tel +973 17 522680
Fax +973 17 522656

© Press Release 2009