Saudi Arabia’s Securities Depository Center Company (Edaa) and Euroclear Bank, the Brussels based International Central Securities Depository (ICSD), have signed an agreement at the Future Investment Initiative (FII) conference to launch a fully Euroclearable link enabling international investors access to the local sukuk and bond markets.
Edaa is fully owned by the Saudi Tadawul Group. It operates and maintains the Depository and Settlement System (DSS) to record and maintain securities and register the ownership of securities on the Saudi Exchange.
The link, which is expected to be launched in March 2022, will provide an additional channel for international investors to access the sukuk and bond markets listed on the Saudi Exchange – the largest in the Gulf Cooperation Council (GCC). It is also one of the largest stock exchanges globally and amongst the top three largest emerging market exchanges with a market capitalization of more than $2.5 trillion.
International investors will be able to settle domestically issued bonds via Euroclear Bank’s direct account in Edaa using their existing Euroclear Bank accounts. This follows Saudi Tadawul Group’s local market infrastructure enhancements which include an improved framework for both primary and secondary market Delivery vs Payment settlement (DvP). The link, which will achieve greater interoperability within the market, is especially timely given the recent announcement of the Saudi Arabia inclusion to the FTSE Russell Emerging Markets Government Bond Index (EMGBI).
Euroclear Bank’s eligible international investors will benefit from a suite of services including internal settlement and safe-keeping of Saudi government and quasi-government bonds listed on the Saudi Exchange, without the need to apply for a QFI status. Ultimately, eligible investors will also be able to use such securities as collateral for financing activities, including repo and pledging via Euroclear’s open Collateral Highway.
Raed Alhumaid, CEO of Edaa, said in a statement: “Linking with International CSDs is one of Edaa’s milestones in our continuous efforts to advance the Saudi capital market and ensure its infrastructure is in line with the Kingdom’s Vision 2030, as we aim to amplify our reach by creating more channels for international investors to efficiently access the Sukuk and Bonds market.”
Lieve Mostrey, CEO of Euroclear Group, said in a statement: “By becoming Euroclearable, this G20 market will gain direct exposure to a wider international investor base, which will result in improved liquidity and cost efficiencies. This achievement is the result of a lot of hard work and diligent focus by all involved as we continue to expand our global service for our clients.”
Over the past few years, the Saudi capital market has seen an increased demand from international investors for Saudi listed sukuks and bonds, as the market issuances grew to over SAR451 billion ($120.1bn), with the increased global demand on government issuances.