In what is the first state visit to Russia by a Saudi ruler, King Salman bin Abdulaziz today will meet Vladimir Putin to discuss oil markets, investment deals, the Syrian war and to deepen the nascent friendship between the two largest oil producers in the world. The delegations are tabling $3bn worth of energy deals with the possibility of a collective $1bn energy investment fund and a $1bn Sibur plant in Saudi Arabia; there’s talk of Gazprom Neft and Saudi Aramco establishing joint research projects; and interminable rhetoric on the “promising areas for bilateral co-operation.”
Newswires suggest that the government of Saudi Arabia could issue a sukuk, or Islamic, sharia-compliant bond as soon as next week. The sukuk market is based around issuing securities that while they may have the same cash flows as Western bonds would, they do not legally pay interest but instead pay based on profit shares. Having peaked in 2012, last year the sukuk market picked up steam; according to sources 2016 saw an increase in over 13% of issuance globally, to ~USD75bn, of which over 60% are issued by corporates.
Hypothetically, what would be the official creditor position of someone who has a year’s salary in their bank but many years’ salary worth of valuable commodities buried in their backyard? Technically it would just be the one year’s salary - which is the equivalent to how we all traditionally measure countries’ government debts; but there’s an obvious omission in such accounting methods. For a number of governments with vast oil reserves who are facing moderate deficits concerns for their creditworthiness have grown to levels which perhaps have yet to fully account for the funds they could raise should they decide to privatise such assets or sell rights to such deposits.
Saudi Arabian Deputy Crown Prince Mohammed bin Salman outlined the Kingdom’s package of programmes over the coming four years to rebalance the Kingdom's balance sheet to boost non-oil income in an interview last week. The cornerstone of the package of programs is to restructure the Kingdom’s Public Investment Fund (PIF) into a Sovereign Wealth Fund which will be the biggest ever seen and in time will mean that Saudi could rely on investment income from the fund being greater than income from oil within 20 years.