Saudi reluctance on IMF advice may curb debt sales

22/05/2012 07:34 AST

Saudi Arabia's failure to develop a local-currency bond market in line with an International Monetary Fund recommendation may limit debt sales to the biggest companies in the world's top oil exporter.

A 15bn-riyal ($4bn) sukuk by the state-controlled General Aviation Authority lead local-currency offerings from at least four borrowers in the biggest Arab economy, data compiled by Bloomberg show. This compares with one sale in the year-earlier period and trails offerings in countries like Norway, an oil exporter with an economy 4% smaller, where 96 borrowers raised about $12.8bn.

While most Saudi companies rely on bank loans and equity markets for funding, greater access to bond markets in the region is essential to expand funding sources for private businesses and develop "more modern economies," Masood Ahmed, Middle East and Central Asia director at the International Monetary Fund, said on May 2.

Saudi Arabia, which is spending $500bn on infrastructure, limits sovereign borrowing to weekly treasury-bill offerings even as Qatar expands such sales.

"The absence of a government bond market, specifically a yield curve, makes it that much more difficult to see a private bond market develop in any country," Mohieddine Kronfol, Dubai-based chief investment officer for global sukuk and Middle East and North Africa fixed income at Franklin Templeton Investments, said by phone on May 10. "Typically they go hand in hand: Nowhere around the world do you have a functioning, active corporate bond market without a government bond market."

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Gulf Times