Saudi Arabia laid out a series of steps it plans to take to boost its debt capital market, including a possible easing in taxes it hopes will make local corporate bonds more appealing to foreign investors.
The Capital Market Authority is considering eliminating a 5 per cent withholding tax on interest payments, which it said is 'unappealing' and 'discouraging' to investment, according to a report outlining its strategy for developing Saudi Arabia's debt capital market.
It also wants to simplify the regulatory process for debt offerings so it's less costly and timely for companies to issue bonds and will look at organizing trading, settlement and clearing in foreign currencies.
The initiatives are all part of Saudi Crown Prince Mohammed bin Salman's economic transformation plan, which calls for establishing advanced capital markets, in addition to building out various new industries like tourism and semiconductors that'll help diversify the kingdom's revenue streams.
While the equity market has been a point of strength — thanks in part to a thriving environment for initial public offerings — debt is still in its infancy.
CMA said the local market for corporate debt has grown by about 8 per cent a year since 2019, though most of that is down to more unlisted issuance rather than public offerings.
It's hoping steps like ditching the withholding tax will broaden the investor base, which is currently dominated by banks, to include more individuals and foreigners.
This week's secondary offering of shares in oil giant Saudi Aramco may be a sign Saudi Arabia's markets are starting to appeal more broadly to investors abroad. Foreigners were allocated about 60 per cent of the shares on offer, marking a turnaround from the oil giant's 2019 listing that drew mostly local interest.
