*Fahad Al-Talal from Riyadh and Manal Al-Ahmadi from Jeddah
Analysts in the Saudi stock market expected banks, insurance companies and investment funds to be the most prominent potential investors in the government debt instruments that start to be listed and traded today.
The inclusion of government debt instruments on the market today is the latest investment channel that diversifies options for major financial institutions, companies and mutual funds.
It is expected that 45 bonds and instruments will be listed in the financial market between major issues and government issues with a total value of SR 204.385 billion.
The registered issues are divided between government development bonds that worth 77.720 billion riyals, government bonds with a variable yield of 68.210 billion riyals, government bonds that worth 58.455 billion riyals.
The period of issuance varies according to each of the listed instruments. The maturities of the government debt instruments offered are between five and seven and ten years.
Analysts stressed that the introduction of government debt instruments enhances the role of the financial market in facilitating financing and increasing its attractiveness to investors, and contributes to moving the market into an integrated financial market.
Dr. Ahmed Al-Ali, stock market analyst, said that the introduction of government debt instruments today would attract major financial institutions of all types as well as major companies and investment funds.
He added that the circle of investors is expanding after the reduction of the value of debt instruments listed for trading. He also said that the internal offering of government debt instruments in the stock market is characterized by increased liquidity.
He pointed out that the government debt instruments are low risk as they were set at transparent prices, and were not affected by the change in the market price and the movement of currency rates.
In addition, Hossam al-Ghamdi, a stock market analyst, said that the introduction of government debt instruments deepens the financial market and enhances its role in facilitating financing and increasing its attractiveness to investors, as it will be a key factor and incentive for companies to offer more debt instruments under diversification. "The entry into the FTSE Index will open up the Saudi market to foreign investors and international funds," he added.
He emphasized that the inclusion and circulation of government debt instruments are the most prominent benefits of expanding the base of investors.
Mohammed Al-Shammari, a stock market analyst, pointed out that sukuk and bonds give a periodic return after being listed in the market by a nominal subscription with a fixed amount of guaranteed returns and guaranteed periodic distributions, as it is preferable for traders to stay on face value and not sell the bond or instrument in the secondary market and wait for maturity.
He pointed out that the inclusion of instruments in the financial market and the possibility of trading between individuals will enable the largest segment of trading.
He stressed the importance of educating individuals about the circulation of bonds and sukuk and qualifying them for new entitlements.
"The presence of new instruments such as sukuk, bonds, financial funds and other types of financial products will contribute to moving the market into an integrated financial market," said Dr. Abdullah Baashen, an economic analyst.
He added, "If we look at debt instruments, we find that it has a very fertile area for the speed of movement, especially as the value of what will be included in the Saudi market is about 204 billion. This is a huge volume to move the market, and it represents a channel of investment that is very safe and fast liquefaction or access to liquidity quickly when needed."
Baashen stated that these bonds and sukuk would provide companies with new tools that are better than previous financing options. So that companies turn from the borrower funds to the lender financial instruments. Companies that produce such instruments should have adequate management and solvency that are enabling them to produce and manage such securities.
Wissam Hussain Al-Furaih, a former Director of M & A at the Capital Market Authority of Saudi Arabia, said government issuances don't only affect the Saudi financial market, but also positively affect the overall economic system.
It is where government issues are seen as the reference on which companies base their issuances in terms of the pricing of sukuk, bonds and securities, and the calculation of margins and profits. In the past, there have been difficulties in issues for companies and financial institutions, because they do not know what the government price is.
Al-Furaih emphasized that the government, represented by the Ministry of Finance and the Debt Management Office, has started to issue foreign and domestic issues, and foreign government publications specifically have given the basic structure in the local sukuk and bond market.
So that there were reference prices for internal issues, and it is known that the issuance of debt office bonds and instruments are different dates.
This is called the curve of return on future years and their impact is important, not only in the financial market, but in the economic system as a whole.
This gives companies the opportunity to develop the sukuk and bond market to create a basic reference base from which to base pricing and determine returns based on government issues.
He pointed out that the inclusion of government financial instruments in the market for trading will not affect the liquidity ratios in the financial market, as some believed. It is another separate financial instrument, and investors in these instruments are investors even before they are listed and put on the financial market. Al-Furaih pointed out that there are many countries around the world issuing periodic issues of bonds or sukuk even if they do not have a need or deficit in the budget, but for the existence of a reference price for all companies, banks and financial institutions.
He expected that during the coming period, the Saudi financial market is going to be promising, especially with the accession of the Saudi market to the FTSE index.
This is indicating that the entry of foreign investor will bring with him the financial expertise, especially with the international expertise houses that will develop the market and move it to a greater stage and more advanced and efficient.
Ahmed al-Shahri, an economic analyst, explained to Aleqtisadiah that the inclusion of debt instruments in the financial market is an indicator of the success of the previously announced initiatives of the Ministry of Finance. The release of 204 billion debt instruments (government bonds) is tantamount to achieving the 100 percent target.
He pointed out that the positive repercussions on the Saudi financial market range from simple to structural and radical implications. The inclusion of government debt instruments in the financial market will raise the level of transparency and disclosure about the sovereign debt of the state and thus increase investor confidence in the Saudi economy.
He said that on the level of efficiency and depth of financial markets, the impact would lead to the upgrading of the level of the Saudi financial market to a higher level compared to similar markets. In addition, it is to improving the pricing levels of government debt instruments (bonds) through supply and demand. This gives investors and the government to trade according to the law of supply and demand in the market and thus the government will get better options in financing its strategic projects and give investors low risk rates.
He added that the inclusion of government bonds in the financial market prevents the inflationary effects as if banks played a role in financing companies, giant and strategic projects, especially since they are often long-term. He pointed out that at the level of monetary policy, government bonds could be a tool of monetary policy in the context of the peg to the dollar.
Dr. Salim Al Masadi, Assistant Professor in Finance and Investment Department at Imam University, said, "Undoubtedly, the CMA is seeking to elevate the market to the ranks of advanced financial markets. This requires a high level of disclosure and efficiency, where it gradually requires diversification of market investment instruments from equities, premium stocks, government bonds and Sukuk, futures, options, swaps and other operations such as short selling and margin buying."
He added that the move to include financial instruments from bonds and sukuk to the financial market in support of diversification of investment options for all clients in the market of individuals and investment funds and private companies belonging to the banking and insurance sectors, in addition to the advanced stage of transparency and disclosure of the Ministry of Finance represented in the Debt Management Office.
Al-Masdi pointed out that the most important advantages of this listing are the ease of trading in the secondary financial market and access to liquidity, especially for banks in case of need to provide liquidity. It also provides an opportunity for investment funds to diversify portfolios, which will help stabilize their performance.
It is because of that the majority of global investment funds are distributed investments on shares and bonds and cash, as well as an opportunity for those interested in real estate funds with stable income, where they have wider choices by including relatively competitive products.
He stressed that liquidity will not be affected by this type of listing.
He pointed out that despite the announcement by the Capital Market Authority that the trading of debt instruments will be open to all investors, but it will not have an impact on the levels of liquidity of the market as a whole.
