Some investors have chuckled at news that high grade Gulf Co-operation Council issuers are looking to diversify the currencies in which they borrow. They see the depth of the dollar market for these borrowers as infinite. But diversifying an investor base is a valuable move and well worth the effort.
Saudi Arabia this week printed in euros, its first public bond print in the currency since 2021. The country’s sovereign wealth fund, the Public Investment Fund, sold a deal in sterling earlier this year.
Bankers said that high grade GCC issuers have currency diversification high on their lists of priorities this year, and are looking at euros, sterling and yen.
At first glance it feels almost nonsensical for issuers such as Saudi Arabia to bother. The country has shown it can raise huge swathes of funding from the dollar market with ease.
But the country still has ambitious futuristic projects to finance and its many state-owned entities are also tapping the same dollar pool. Plenty of other fresh issuers could try it to.
Even the mighty can fall. Few would have predicted at the start of last year that A-rated Israel would be fielding warnings from rating agencies about a drop to junk by the end of the year.
When Israel, at war, needed funding at the end of last year it turned to the private placement market and picked up money in a range of different currencies.
There is a new sheriff in town in the US and geopolitics are a rising influence on capital markets once more. Donald Trump is also demanding oil prices be brought down.
No one expects Saudi Arabia to stumble in bond market in the foreseeable future. But as well as currency diversification bringing down funding costs overall in the good times, it serves as ballast in the bad. It would be arrogant and foolish not to try it.