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Saudi Debt Market Doubles to $213.3 Bn

Chairman of Saudi Arabia’s Capital Market Authority (CMA) Mohammed Al-Quwaiz takes part in the Debt Markets and Derivatives Forum 2024 in Riyadh. (Asharq Al-Awsat)
Chairman of Saudi Arabia’s Capital Market Authority (CMA) Mohammed Al-Quwaiz takes part in the Debt Markets and Derivatives Forum 2024 in Riyadh. (Asharq Al-Awsat)
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Saudi Debt Market Doubles to $213.3 Bn

Chairman of Saudi Arabia’s Capital Market Authority (CMA) Mohammed Al-Quwaiz takes part in the Debt Markets and Derivatives Forum 2024 in Riyadh. (Asharq Al-Awsat)
Chairman of Saudi Arabia’s Capital Market Authority (CMA) Mohammed Al-Quwaiz takes part in the Debt Markets and Derivatives Forum 2024 in Riyadh. (Asharq Al-Awsat)

Saudi Arabia’s debt market has doubled to nearly SAR 800 billion ($213.3 billion) by the end of last year, up from SAR 400 billion ($106.6 billion) in 2019, following regulatory reforms under the Kingdom’s Vision 2030.

Sukuk issuances rose by 40%, while liquidity grew by over SAR 2.5 billion ($666 million).

Mohammed Al-Quwaiz, Chairman of the Capital Market Authority (CMA), shared these updates during the Debt Markets and Derivatives Forum 2024 (DMDF 2024) in Riyadh on Sunday.

He said Saudi Arabia’s debt markets are becoming more attractive globally and are nearing a significant milestone under Vision 2030.

Al-Quwaiz noted that global debt markets are worth between $140 trillion and $150 trillion, compared to $115 trillion for equity markets.

He added that Saudi Arabia aims to join more global indices to attract foreign investment.

The focus now is on expanding the debt market’s reach, which is becoming more open to foreign investors than the stock market. Vision 2030 and its projects have also driven up borrowing demand.

Al-Quwaiz noted that bank financing is still the main borrowing source in Saudi Arabia, but the country has started using the debt market as well.

“We’ve seen significant growth in the stock market’s role in financing, and now the debt market is taking shape,” he said.

He explained that the debt market is built on three key foundations: the 2018 Bankruptcy Law, the creation of the National Debt Management Center, and the establishment of the National Committee for Debt Market Development.

This committee, led by the CMA, includes the Saudi Central Bank, the Financial Sector Development Program, the National Debt Management Center, and Tadawul, all crucial to the market’s regulatory and operational structure.

Khlood Al-Dukheil, CEO of Financial Analytics, told Asharq Al-Awsat that the debt market is vital for emerging economies as it provides companies with liquidity and investment opportunities.

“In Saudi Arabia, we are still in the early stages of developing this market,” she said.

“Initially, the government was the main beneficiary, but for the market to grow and deepen, it must also serve private companies and other sectors,” added Al-Dukheil.

The DMDF 2024 featured discussions where leaders from major financial firms talked about the improvements in Saudi Arabia’s debt market.

In a panel discussion called “New Horizons for the Debt Market,” CEO of Edaa, the Saudi central securities depository, Hanan al-Shehri noted that debt market issuances are now six times higher than those in the equity market, indicating significant progress.

Waleed Al-Rashed, CEO of Al Rajhi Capital, said debt investments are less risky than stocks or alternative investments, with returns between 5% and 8%, making them a solid choice for investors.

Majeed Al-Abduljabbar, CEO of the Saudi Real Estate Refinance Company, explained that the debt market helps provide liquidity, boosting economic growth and investment diversity.

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Business

Turkish Firms Face Wave of Closures Amid Economic Reckoning 

Leftover textile materials are seen outside a shut-down textile factory at the organized industrial zone in Corum, Türkiye, August 23, 2024. (Reuters)
Leftover textile materials are seen outside a shut-down textile factory at the organized industrial zone in Corum, Türkiye, August 23, 2024. (Reuters)
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Turkish Firms Face Wave of Closures Amid Economic Reckoning 

Leftover textile materials are seen outside a shut-down textile factory at the organized industrial zone in Corum, Türkiye, August 23, 2024. (Reuters)
Leftover textile materials are seen outside a shut-down textile factory at the organized industrial zone in Corum, Türkiye, August 23, 2024. (Reuters)

It is hard for Dogan Duman to see how he can keep his garment factory in central Türkiye running much longer, even after firing a third of his staff to cut costs that have soared for companies nationwide, generating a wave of bankruptcies and closures.

Idle sewing machines are pushed to the side of his factory floor in Corum, where outside "For Sale" signs and padlocked gates dot the small city's once-buzzing industrial zone.

Such sober scenes are spreading across Türkiye as part of the fallout from a more than year-long policy-tightening effort, including a 50% benchmark interest rate, to rein in years of soaring inflation and overheated demand.

Thousands of companies like Duman's - which makes coats and jackets for global fashion brand Zara - are squeezed by inflation that topped 75% earlier this year, an overvalued lira, hikes to electricity and gas prices and dwindling export orders.

"The orders are shrinking daily because we are losing our competitiveness... and I think they will shrink even more," he said of his 27-year-old company that is now down to 60% capacity and 210 employees.

Türkiye is one of the world's top five garment manufacturers and a critical source for Europe's top brands. But despite its advantage of proximity to Europe, its main trade partner, Duman says swelling energy, labor and FX costs have left him trailing rivals in Vietnam and Bangladesh.

"Considering the current lira exchange rate and the expected further rise to minimum wage next year, I think we won't be able to compete," he said. "We will be at a point of shutdown."

These days, Turkish households and business are facing the economic consequences of a cumulative 41.5 percentage points of rate hikes that began in June last year and are now finally beginning to cool inflation, which dipped to 52% last month.

Last year's dramatic policy U-turn, including fiscal steps, aims to leave behind years of soaring prices and currency crashes under President Recep Tayyip Erdogan's formerly unorthodox approach of monetary easing to stoke growth.

But with credit now out of reach for many, and lira depreciation badly lagging monthly price rises, companies, especially apparel and textile exporters, are in a crunch.

Almost 15,000 companies closed down in the first seven months of the year, up 28% from 2023, according to the Union of Chambers and Commodity Exchanges of Türkiye.

Other data suggest bankruptcy stress is brewing.

Monitoring outlet konkordatotakip.com says 982 companies were granted initial court protection from debt in the first eight months of the year, almost double last year's total.

Construction and textile firms have made the largest number of such applications to suspend debt payments to banks and suppliers to continue operations, and also for bankruptcy proceedings.

Such company strains have knock-on effects, slowing or halting payments across the economy and lifting joblessness.

There may be "heavy costs," said Erdal Bahcivan, chairman of Istanbul Chamber of Industry. "While trying to save a company, dozens of (creditor) firms may end up in dire straits."

Some economists say that given the aggressive tools used to slay inflation, rising unemployment and bankruptcies are all but certain.

"This is a serious dilemma for the government," said Seyfettin Gursel, director at Bahcesehir University Center for Economic and Social Research. "It is trying to put the monster it created back into its lair, but doesn't know how to do it".

STREWN GARMENTS

In Corum, 500 kilometers east of Istanbul, some factories have broken windows and one had dozens of colorful rain-drenched garments strewn across its grassy yard.

Bulent Demirci, co-owner of a yarn factory in the city with 50 workers, said he shut it down a couple of months ago due to an "unpredictable economic outlook".

"We had production cuts from time to time in the past. But this time it is all doom and gloom," he said.

Ankara's latest hike to the minimum wage was to 17,002 liras ($500) in January, which is up 100% from a year earlier and 500% from the end of 2021, when a historic lira crash rocked Türkiye.

Gas and electricity prices have risen about sevenfold and threefold respectively since 2021 for small to mid-scale manufacturers.

Türkiye’s overall production costs are now almost 40% higher than in competing Asian countries in dollar terms, according to interviews with exporters, who also blame barriers to financing and dwindling working capital.

Exporters have lobbied for more currency depreciation given that, year-to-date, inflation is 32% while the lira has fallen only 13% to the dollar. Authorities however have urged lira holdings, helped along by high deposit rates.

Istanbul-traded Mega Polietilen and garment manufacturer 3F Tekstil are among those that applied for court protection from debt payments.

An executive at 3F who requested anonymity said the move helped as it struggled to survive with a total 600 workers, and to continue supplying fashion brands such as Mango and H&M.

"But our suppliers and those who have receivables will suffer more in this process," amounting to roughly 10,000 workers at outsourced manufacturers across the country, the executive said.

"When interest rates reached 60-70% the companies could not bear it. They cannot manage their debt," he said. "Businesses have paid for high inflation in Türkiye."