Tadawul CEO expects increased liquidity in debt market on inclusion in EMGBI

Mohammed Al-Rumaih, CEO of the Saudi Exchange (Tadawul)

Mohammed Al-Rumaih, CEO of the Saudi Exchange (Tadawul), said the size of liquidity in debt markets has witnessed since joining FTSE Russel index in 2018. Trading volumes reached SAR 600 million, rising 715% to SAR 5 billion in 2019 and SAR 37 billion in 2020. 

Trading volumes increased in the first half of 2021, Al-Rumaih explained. 

The Saudi market will benefit from joining the FTSE Russell Emerging Markets Government Bond Index (EMGBI). This inclusion will allow the Saudi sukuk and debt instruments to be part of the sukuk and debt instrument indices tracked by global investors, in addition to a significant increase in foreign investment in terms of turnover and the percentage of ownership.  
 

In addition, the number of interested participants in the market will increase and liquidity levels will see improvement.  
 

“The market liquidity is expected to rise driven by foreign investors and their increasing ownership after the market’s inclusion in the EMGBI. Moreover, the private sector will also benefit from the sukuk and debt instruments market to finance their projects, especially in the long term,” Al-Rumaih told Argaam in an exclusive. 

Additionally, Tadawul’s strategy will increase the number of offered investment instruments, in proportion with investors’ risk appetite and expected returns. 
 

The inclusion of the Saudi sukuk and debt instruments in the FTSE Russell Emerging Markets Government Bond Index took place after many enhancements introduced by the sukuk market development committee, in cooperation with the Capital Market Authority (CMA), the Saudi Central Bank (SAMA), the National Debt Management Center (NDMC) and the Saudi Tadawul Group. 
 

These enhancements included a reduction of sukuk nominal value from SAR 1 million to SAR 1,000. Qualified foreign investors were also allowed to participate in the debt market and the private transaction mechanism was developed for the debt market. Moreover, the debt market indices were launched in coordination with IHS Markit and iBoxx.  
 

A total of 42 bonds are likely to join the index at a total nominal value of SAR 30.6 billion, accounting for 2.75% of the EMGBI, based on the weighted market capitalization, which will help global portfolio managers compare the performance of investments in the sovereign debt markets, Al-Rumaih noted. 

The debt market size represents currently 16% of the Kingdom’s gross domestic product (GDP), according to the H1 2021 statistics. The Kingdom targets this size to reach 24% by 2025 under the the Financial Sector Development Program. (FSDP) and Vision 2030.  
 

“We’re working to achieve this target. Debt issuances saw an increase with higher growth in liquidity,” Al-Rumaih noted. 
 

“We are looking forward to increasing and diversifying volumes, in cooperation with the debt market development committee, especially by the private sector to achieve and outperform these targets,” Al-Rumaih concluded.