Retail investors may soon have the opportunity to investment in Saudi Arabia’s government bond market under plans announced at the end of April.
This comes after the country said it would sell off government sukuk bonds, which comply with Islamic law, in portions around SAR1,000 (£204, $267, €238), rather than the current SAR1m.
At present, the scheme only appears to be open to retail investors in Saudi.
What it means for the retail space?
Daniel Vaughan, director of manager research and manager selection at Morningstar Investment Management Europe, told International Adviser: “I would say its more a reflection of the Saudi’s cautious expectations for the global economy and its impact on demand for sukuk, bearing in mind their own financing needs, rather than the impact of the global economy.
“There are two key issues that may impact supply and demand for sukuk going forward and, hence, Saudi Arabia’ costs of financing; global liquidity tightening and lower oil prices.”
Opening up the market
Vaughan added: “Anything that makes a market broader and deeper should be encouraged, however with retail investors becoming more involved we hope that the move will be accompanied by a specific regulatory framework to protect investors and ensure proper access to information about risks.
“The Saudi regime could take the lead in the cross-border sukuk standardisation issue, especially around standard legal documentation providing clarity for investors on the recourse options available in the event of a default.
“This would not only help investors but also likely smooth the issuance process for the Saudi companies looking to raise capital.”
Saudi’s ambitions
The country’s finance minister Mohammed al-Jadaan, told the UK newspaper Financial Times: “We want to encourage savings; our market has very little savings schemes.
“It will help families to plan better, retirement, education… but also help the economy significantly because that money is used to finance businesses and generate more GDP.
“Redemption becomes very difficult if you are trading in millions. So, by making it SAR1,000 it becomes a lot easier for the financial industry to create new products.”
Saudi Arabia unveiled a ‘Vision 2030’ plan in 2016, which it hopes will reform the capital markets sector.
The government has increased its borrowing to fund the economic changes and, at the end of 2018, had around $150bn (£113.2bn, €132bn) in funding.
