The economic reforms undertaken by Saudi Arabia's government under the Vision 2030 programme, coupled with elevated oil prices, are creating significant investment opportunities for the kingdom's corporations, according to S&P Global Ratings in a new report.   

"Given the country's many government schemes, investment commitments and private sector spending plans, its investment needs are significant. The banking sector will not be able to meet all needs despite its strong capitalisation," said S&P's analysts. 

Therefore, the capital markets will play a key role in funding not just private sector investments but also giga-projects such as Neom, the IPO for which is expected in 2024, they added. 

The main force behind the wheel that is driving the vision is the state wealth fund, Public Investment Fund (PIF), which has $620 billion in assets under management (AUM) as of the first quarter of 2022. 

The fund has identified 13 strategic sectors to prioritise, to best support the national economy. These are aerospace and defense; automotive; transport and logistics; food and agriculture; construction and building components and services; entertainment, leisure and sports; financial services; real estate; utilities and renewables; metals and mining; healthcare; consumer goods and retail; and telecom, media and technology. 

"We understand that the country's investment needs are significant given the many government schemes, investment commitments and private sector spending plans through to 2030,” S&P said.  

“Gauging exact funding requirements and timing is not easy, but it is clear that the banking sector will not be able to meet all needs despite its strong capitalisation." 

The ratings agency said even as corporates increase their capital spending budgets over the next two to five years, their balance sheets are healthy, and they enjoy strong liquidity. Therefore, they will not be taking any immediate rating actions on Saudi corporates.

"Over time, however, we will reassess our ratings as projects are executed because any rating upside would hinge on business trends improving, sustainable EBITDA growth, or stronger leverage metrics," said S&P. 

(Writing by Brinda Darasha; editing by Cleofe Maceda)

brinda.darasha@lseg.com