London: Credit-default swaps on Saudi Arabia are the worst performing sovereign contracts this year, even though the kingdom has no debt to insure, as investors hedge the risk of political turmoil in the world's biggest oil supplier.
Swaps on Saudi Arabia almost doubled in two months to a more than 19-month high of 143 basis points from 75 at the start of 2011, according to CMA. The nation's stock gauge, the Tadawul All Share Index, is also the worst performing benchmark in dollars, dropping 20 per cent to an almost two-year low of 5,270.
Default protection on governments across North Africa and the Middle East has soared as popular uprisings toppled leaders in Tunisia and Egypt. Swaps on Saudi Arabia are being used to speculate on contagion, as a proxy for government-controlled companies such as petrochemical maker Saudi Basic Industries Corp, and to hedge debt the nation may sell in future.
Exposure
"There are people who have exposure to Saudi quasi sovereigns and use Saudi swaps to hedge their exposure," said Raffaele Semonella, an analyst at BNP Paribas SA in London. "Swaps are also being played by people who are just speculating on the situation in the country."
Saudi King Abdullah Bin Abdul Aziz has pledged to increase spending by 110 billion riyals (Dh107.69 billion) to boost housing, education and social welfare.
