Previous monitoring of the newspaper about the issuance of countries in emerging markets revealed that some of those economies, which peg their currency to the dollar and do not have existing commitments to the euro, are using contracts that allow the proceeds of issuing euro-denominated bonds to be replaced by the dollar currency, in a move that leads to higher costs of issuance.
One of the bankers in the banks that arranged the issuance of the euro to Saudi Arabia confirmed to the British newspaper "Global Capital" that "Saudi Arabia has commitments in the euro and will not enter into contracts to replace the euro" (coming from the issuance proceeds) with the dollar currency known as the euro-dollar swap.
The presence of “liabilities” similar to the size of the Eurobond issuance is positive for three reasons. The first is that this is considered a natural hedge, given that the Kingdom spares the exchange rate risks between the euro and the dollar (because the presence of euro cash flows is a result of the commitments established by Saudi Arabia).
The second matter is that not using these contracts means an abundance of issuance costs. Creating commitments in the euro means that these commitments may be in the form of anticipated investments by the government (or its funds) in the European continent, or euro-denominated payments, or even projects.
On July 2, 2019, during its special coverage of the issuance of Eurobonds, Al-Eqtisadiah indicated that the entity that manages “bond indices”, namely GB Morgan emerging market bond indices, that the next Saudi issuance is eligible to join the bond index. The euro is known as EURO EM - BIG.
I mentioned at the time that this accession is expected to boost the demand for the Saudi issue during secondary trades after the two tranches are listed.
It stated that the return of the eight-year segment is the lowest recorded in the history of Saudi international issuances denominated in hard currencies, and the newspaper assumes that using the proceeds of issuance denominated in euros and directing them towards purposes denominated in the same currency of issue, without the need to replace the issuance currency with another currency.
Despite the varying sources, which determine the actual number of countries falling under the name of "emerging or emerging markets", there is consensus that the number of these countries ranges between 38 countries and 45 countries, including the Gulf states, Russia, China, Korea, and India.
On the other hand, the National Center for Debt Management indicated during its description of the annual borrowing plan for 2020 that the external debt portfolio is that the euro-denominated debt is less than 2 percent of the total debt portfolio at the end of 2019.
The center may examine opportunities for external issuances in currencies other than the US dollar, according to international market conditions and supply and demand factors. The Kingdom is distinguished by its large reserves of foreign currencies, and it has a stable exchange rate policy.