Is Saudi’s debt strategy sustainable?

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WHAT WE’RE TRACKING TODAY

THIS MORNING: Aramco delays Jazan restart

Good morning, folks. While Saudi Arabia’s 2Q fiscal figures may provide relief on the surface, we take a closer look at the Kingdom’s debt situation in today’s Contrarian View, below. Meanwhile, a report by Alvarez & Marsal reveals the financing required to back Saudi Arabia’s data center buildout — showing how much room we have to grow. Finally, we got more 2Q earnings from Ades, Bindawood, Seera, and more.

Houthi strikes delay restart of Jazan

Aramco will reportedly delay restarting operations at its Jazan refinery to 30 August, Bloomberg reports, citing market intelligence firm IIR Energy. This pushes back the 400k bpd / d facility’s restart by two weeks.

REMEMBER- The Houthis claimed to have targeted the refinery again over the weekend, which they said was in retaliation for Saudi Arabia’s breach of Yemen’s airspace with drones. Jazan was struck last month, damaging the refinery’s gasification complex and tank farm.

Musa Sanaiya fire claims 16 victims

A fire broke out at a sofa manufacturing factory in Riyadh’s Musa Sanaiya industrial area, killing 16 Bangladeshi workers on Sunday, Reuters reports, citing an announcement by Bangladesh’s Foreign Ministry. The ministry is monitoring the situation, while its embassy in Riyadh is working with Saudi authorities on repatriation formalities and arrangements to return the bodies and provide government assistance to the victims’ families.

Tourism Ministry suggests staffing threshold

The Tourism Ministry is proposing mandatory minimum staffing levels for hotels and other tourist accommodations, Gulf News reports, citing an official proposal released by the ministry. The draft rules tie employee requirements to property size and classification, aiming to boost service quality and efficiency.

How many employees are we talking? The proposal suggests that luxury five-star hotels, hotel villas, hotel apartments, and resorts would require three employees per room, while other five-star properties would need four staff members for every five rooms. Four-star properties would require three for every five rooms, three-star properties two, and two-star properties one.

Lower tiers will need smaller staff: Heritage hotels would require three employees per five rooms, while hostels would need one per 10 rooms. First-class serviced apartments and holiday homes would require one staff member per five rooms, compared with one per eight rooms for economy-class properties. One-star and unclassified establishments would require one employee per 10 rooms. The minimum staffing levels would have to be maintained year-round.

Existing licensed establishments would have up to 180 days to comply once the rules take effect, while properties upgraded to a higher classification would have 90 days.

Data point

16.3% — that’s how much the Industrial Production Index fell y-o-y in June as mining and quarrying and manufacturing activities declined, according to Gastat data (pdf). On a m-o-m basis, however, the index rose 4.3%.

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The big story abroad

In the latest twist in the regional war, US President Donald Trump has issued a counter-demand for financial compensation from Iran, turning Tehran’s own claim for war damages back on the Islamic Republic. Iranian officials had indicated that reparations and an end to sanctions, largely in line with the terms of the interim truce signed in June, are prerequisites for opening the Strait of Hormuz.

Wall Street’s next big AI wager: Nvidia is looking to mobilize USD 500 bn for AI infrastructure after signing MoUs with six major financial firms, including BlackRock, Blackstone, Apollo, Goldman Sachs, and KKR. The chipmaker aims to launch first-of-their-kind compute financing platforms, accelerating AI infrastructure expansion across labs, enterprises, and cloud providers.

Meta has unveiled Muse Glimmer, an open-weights version of its most powerful AI model, Muse Spark, making its underlying calculations accessible to the public. Muse Spark, however, will remain closed and accessible only to paying users. The announcement was accompanied by an essay by CEO Mark Zuckerberg, who championed his vision for a transparent tech landscape vis-a-vis AI innovation.

Speaking of Meta: A US appeals court has allowed thousands of lawsuits against Meta, Google, TikTok, and Snapchat to move forward over claims that the companies designed their platforms to be addictive to young users. The cases were brought forward by states, municipalities, school districts and individuals claiming that the social media platforms contribute to depression, anxiety, body-image issues among young demographics.

Also in the AI world: OpenAI wrapped up a USD 7 bn share buyback sale, allowing current and former employees to sell stock ahead of an anticipated Wall Street listing. The startup opted to buy back its shares from its employees rather than tapping outside investors, which values the company at USD 852 bn.

At least 111 people were killed in Colombia yesterday after a magnitude 7.4 earthquake struck, damaging nearly 1.6k homes and collapsing 60 buildings. It was Colombia's most powerful earthquake this century, its geological service said.

Is Saudi Arabia’s debt strategy sustainable?

Headline numbers looked better in the second quarter, but not all analysts are reading that as evidence that the Kingdom’s harder questions have been answered. “Saudi Arabia’s increasing reliance on debt extends well before the war, reflecting the extensive costs of diversification and desire to leverage assets to meet economic goals,” Geo-economic risk analyst Rachel Ziemba, founder of Ziemba Insights and an adjunct senior fellow at the Center for a New American Security, tells EnterpriseAM. The bigger tests, in Ziemba’s view, sit further out: in borrowing costs, in how long the reserve buffer can be stretched, and in the external accounts that don’t show up in a quarterly budget release.

Borrowing got no cheaper even as numbers looked better. The entire first-half deficit of SAR 160 bn was financed through borrowing, with nothing drawn from government reserves. Public debt climbed to SAR 1.685 tn by the end of June, up from SAR 1.519 tn at the start of the year, while financing expenses, the interest cost of carrying that debt, rose 41% y-o-y in 2Q alone. “With the conflict, the oil revenue piece is down but partly offset by higher prices,” Ziemba says. “But it’s more that spending needs have gone up.” Saudi Arabia is still better placed to absorb the fiscal hit than regional peers like Iraq or Bahrain, though it shares one exposure with every sovereign borrower: “Saudi Arabia faces challenges as US Treasury rates, and thus Saudi spreads, go up.”

Investors are still showing up, for now. Fitch affirmed the Kingdom’s A+ rating on 12 July, pointing to strong fiscal buffers and external finances even amid regional conflict and trade disruptions, while flagging oil dependence and governance as constraints. Moody’s affirmed Aa3 in May. Ziemba’s read on investor sentiment tracks with that calm: “Investors have been relatively upbeat about Saudi risk given the higher oil prices that partly compensate, but the bigger effects may be medium-term in nature.” She flags a structural issue underneath the calm, though: “Attracting FDI into key projects remains difficult,” which means Riyadh’s own government will likely keep functioning as the main investor behind its diversification agenda.

The government is choosing to borrow rather than draw down its cushion. Asked whether a two-front war, Iranian strikes, Houthi attacks on shipping and oil infrastructure, and the prospect of a Yemen ground campaign is the scenario the reserves were built for, Ziemba says yes: “This is one of the reasons why Saudi Arabia saved, and why the PIF was already turning mostly domestic.” She leaves one thought open-ended: how long that strategy holds depends on “whether Saudi Arabia is able to continue diverting supplies through new channels.”

The external accounts are the part that doesn’t show up in a quarterly deficit number. Ziemba argues the “full cost structure” of the war has to be weighed separately from the budget line, including war-risk premiums and the cost of rerouting shipments around Red Sea chokepoints. “I anticipate that the dynamics of the war will reinforce the Kingdom’s interest in import substitution, including construction inputs,” she says. “This will support the mining sector.” She also expects Saudi Arabia to be “looking to attract cargo throughput from other countries,” pulling in regional transshipment as the war reshapes Red Sea and Gulf logistics.

Ratings agencies are drawing a line between fiscally stressed and geopolitically stressed but solvent, and Saudi Arabia sits on the solvent side. “Saudi Arabia faces a structural fiscal weakness, but a manageable one, and additional stresses from the conflict,” Ziemba says. What keeps the agencies calm, she says, is a mix of continued fuel exports, revenue offsets elsewhere in the budget, and rising re-exports through Saudi Arabia “from other neighbors that lack port infrastructure” of their own. Looking further out, she says the agencies “will be considering demand shifts and the return on recent government investments,” a test that hasn’t come yet.

Data center boom needs up to USD 42 bn

Big funding need: Saudi Arabia’s data center build-out could require between USD 24 and USD 42 bn in project capital and between USD 14 and 32 bn in debt financing, according to a new report by Alvarez & Marsal.

Capacity set to grow: The Kingdom currently has around 410 MW of installed data center capacity, forecast to reach roughly 1 GW by 2030. However, the announced project pipeline points to significantly greater ambitions, fueled by AI adoption and hyperscale cloud investment.

Saudi Arabia has around 12 watts of data center capacity per capita, compared with about 50 watts in both the UAE and the US, highlighting substantial room for growth.

Three factors: A&M reported that developers’ ability to secure financing will increasingly depend on three factors — contract, construction and capital. Securing anchor customers, locking in bankable revenues, allocating construction risks appropriately, and planning capital structures over the asset’s lifecycle will be key to attracting funding.

Why it matters: The scale of Saudi Arabia’s data center ambitions means access to capital could become as important as securing land, power, and customers. Projects that are structured to give lenders predictable cashflows and manageable risks are likely to have an edge as developers compete for funding.

Ades, BinDawood, Seera, Lazurde, Arabian Drilling, and MBC Group report 2Q earnings

Ades Holding’s earnings pressured by regional disruptions

Ades’ earnings get hit by the conflict despite operational expansion: Ades Holding’s net income declined 31.9% y-o-y to SAR 128.5 mn in 2Q 2026, which was attributed to temporary offshore rig suspensions due to the conflict and non-recurring ins. costs, according to a Tadawul disclosure. Revenue rose 36.4% y-o-y to SAR 2.15 bn during the quarter.

The group grew its operational top line on the back of stronger offshore performance and Shelf Drilling’s acquisition, according to its earnings (pdf). It also benefited from stronger activity across India, West and Central Africa, and Southeast Asia, alongside greater contributions from Ades’ production model in Egyptian brownfields.

The drilling services giant continued its expansion wave, acquiring Italian Saipem’s shallow-water drilling business in Saudi for USD 285 mn, ramping up its activity in Nigeria by securing a SAR 375.3 mn contract for the Shelf Drilling Odyssey jackup rig and a SAR 180.7 mn one-year contract by Belbop Nigeria. It also extended its contract with Tenaz into a three-year commitment and a potential contract value of SAR 832.2 mn.

On a 1H basis, Ades’ net income shed 4.6% y-o-y to SAR 365 mn, while its revenue jumped 49% y-o-y to SAR 4.5 bn.

Dividends: The company will distribute SAR 220.8 mn in dividends for 1H 2026, equivalent to SAR 0.2 per share, on 9 September, according to a separate disclosure.

BinDawood’s books hit by expansion costs

BinDawood Holding reported a 4.3% y-o-y decline in net income attributable to shareholders to SAR 49.6 mn in 2Q 2026, according to a Tadawul disclosure. Net income, excluding the deduction for income attributable to non-controlling interests, would have increased 5.3% y-o-y to SAR 53.2 mn, according to its earnings (pdf). Revenue grew 11.4% y-o-y to SAR 1.6 bn during the period.

Behind the numbers: The performance was influenced by higher borrowing costs linked to new lease obligations and financing of recently acquired subsidiaries. Finance income also declined due to the group’s capital allocation and debt-funded expansion. The results, however, saw strong retail demand and the integration of portfolio additions, such as Vaza Foods, Zahrat Al Rawdah Pharmacies, and Toy Triangle.

The half-year performance showed a slight improvement, with net income marginally increasing to SAR 119.7 mn from SAR 119 mn a year earlier, while revenue rose 9.7% y-o-y to SAR 3.45 bn.

What’s next? The company aims to finalize its Wonder Bakery acquisition and fully consolidate Vaza Foods in the near future while continuing to invest in its digital and physical infrastructure, CEO Ahmad BinDawood said. It previously announced planned expansions through acquisitions valued at SAR 1.5-2 bn to capitalize on the growth of the retail sector.

Seera’s income jumps on Almosafer growth

Seera Group Holding reported a 26-fold y-o-y increase in net income to SAR 80 mn in 2Q 2026, up from SAR 3 mn a year earlier, it said in a Tadawul filing. Revenue rose 3.7% y-o-y to SAR 1.25 bn during the quarter. The company attributed this jump in net income and revenue to Almosafer, including non-recurring gains from Careem holdbacks and asset divestments.

Net income for 1H reached SAR 122 mn, up 205% y-o-y from SAR 40 mn, while revenue for the period increased 1.3% to SAR 2.34 bn.

Lazurde narrows loss as gold prices go up

Lazurde Company for Jewelry narrowed its net loss in 2Q 2026 to SAR 5.2 mn from SAR 25.8 mn a year earlier, it said in a Tadawul filing. Revenue rose 34.5% y-o-y to SAR 887.1 mn during the period, helped by higher gold prices and stronger operating performance.

For 1H 2026, Lazurde’s net loss narrowed to SAR 1.6 mn from SAR 12.5 mn. Meanwhile, revenue rose 39.1% to SAR 1.92 bn.

Arabian Drilling drops to the red

Arabian Drilling Company reported a net loss of SAR 31.5 mn in 2Q 2026, up from SAR 7.5 mn a year earlier, as lower rig utilization weighed on revenue, it said in a Tadawul disclosure. Revenue dipped 11.3% y-o-y to SAR 764.7 mn over the quarter, with average rig utilization falling to 72% from 79%. The decline was partly offset by the full-quarter contribution from unconventional rigs and a new barge.

1H was also in the red as the company posted a SAR 24.5 mn net loss, compared to net income of SAR 82.7 mn in the same period last year. Revenue declined 10.6% y-o-y to SAR 1.59 bn during the first half of the year.

MBC Group’s 2026 woes persist

MBC Group reported a net loss of around SAR 263 mn in 2Q 2026, down from last year’s net income of SAR 151 mn, it said in a Tadawul filing. The drop was largely attributed to a SAR 348 mn decline in the fair value of financial assets.

Revenues for 2Q dropped 28% y-o-y to roughly SAR 708 mn due to softer advertising demand amid geopolitical turbulence in the Gulf, as well as the expiration of some broadcasting and technical service contracts, management said.

Net losses for 1H amounted to SAR 34 mn, down from last year’s SAR 414 mn, while revenues for the period decreased around 25% y-o-y to SAR 2.3 bn.

REMEMBER- The group projected 2026 margins of 7-9% for broadcasting and commercial activities and 2-4% for media and entertainment. MBC Shahid is expected to break even in 2027.

Riyad Bank doubles sukuk issuance size, Flynas lands first government travel agreement

Riyad Bank doubles sukuk issuance

Riyad Bank completed its SAR-denominated AT1 sukuk offering, with total subscriptions reaching SAR 13.59 bn, or 2.7x the initial issuance size, according to an announcement. The bank increased the offering to SAR 10 bn from an initial SAR 5 bn.

Capital boost: The perpetual sukuk carries a 6.5% annual fixed return, payable quarterly, with the rate resetting every five years starting 13 August 2031.

Flynas lands first government travel agreement

Gov’t taps flynas for budget state travel: Flynas signed a framework agreement with the Expenditure and Projects Efficiency Authority (Expro) to provide low-cost air travel services to Saudi government entities, marking the airline’s first government travel agreement, according to a press release.

The details: Flynas is completing technical integration with relevant government entities, with services expected to begin in 4Q 2026. More than 250k government travel orders have been issued since 2023, according to Etimad’s statistics. Bringing a low-cost carrier into the market could give government entities more flexibility on pricing and routes.

Mena M&A value drops 21% to USD 46.7 bn in 1H despite 2Q rebound — EY

The MENA region was home to USD 46.7 bn in M&As in 1H 2026, down 21% y-o-y in terms of value and 10% in terms of volume, Zawya reports, citing EY’s latest M&A Insights report. A total of 390 transactions were recorded over the period, as geopolitical tensions spilled over. Momentum picked up in 2Q driven by a steady pipeline of domestic and outbound M&As, plus sovereign capital, which was the throughline. EY names GCC sovereign wealth funds Abu Dhabi Investment Authority (Adia), Public Investment Fund (PIF), and Mubadala specifically as central to shaping M&A activity across the region in 1H.

Signs of a more selective market: The gap between value and volume points to smaller ticket sizes, with the average transaction coming in at roughly USD 120 mn this year, down from an implied USD 135 mn in 1H 2025. However, that average masks a split year marked by a soft first quarter dragging the half-year number down, while the agreements that did land in the second quarter skewed large.

A 2Q recovery: Transaction value came in at USD 25 bn in 2Q 2026, more than double the USD 12.2 bn recorded in 2Q 2025, with May and June alone accounting for 61% of the quarter’s M&A volume and 79% of its value. Transactions above USD 500 mn made up nearly three-quarters of total value between March and June — when investors came back, they came back big.

Domestic capital did the heavy lifting. Local M&A value exceeded USD 16.0 bn for March-June, more than 4x the same period last year, led by real estate, power and utilities, and tech. Government-related entities were behind much of it, tied to the region’s infrastructure and diversification push.

Outbound held up better than inbound. Regional investors closed 119 outbound M&As worth USD 25.5 bn, with the UAE and Saudi Arabia doing most of the shopping abroad. The two marquee transactions were Dubai Aerospace Enterprise’s USD 7 bn purchase of Macquarie AirFinance and Saudi Electronic Gaming Holding Company’s (Savvy) USD 6 bn acquisition of Shanghai Moonton Technology.

Inbound was the softer side. Foreign buyers pulled back on geopolitical uncertainty, but where capital did land, it went to tech, specifically AI-driven solutions, enterprise digitalization, and software platforms, which dominated inbound agreement value in 2Q. The UAE kept its position as the region’s top inbound destination.

Two other counts tell different stories

LSEG’s own tally put the MENA M&A picture in sharper decline. Transaction value fell 47% y-o-y to USD 48.7 bn in 1H, against a nearly flat M&A count (642 plays, down just 2% y-o-y). LSEG’s broader scope — announced transactions with any MENA involvement, not just completed regional transactions — explains part of the value gap with EY’s number. The same pattern shows up in average transaction size, which fell to roughly USD 76 mn per transaction this year from an implied USD 140 mn in 1H 2025.

PwC’s narrower TransAct Middle East report (pdf) counted 272 M&A agreements in 1H, excluding Morocco and apparently SPAC mergers such as Miotal/Fifth Era. Saudi Arabia led with 74 transactions, while it and the UAE together accounted for 65% of regional volume. PwC didn’t give a total value, but the same shift toward smaller tickets shows up in the numbers. Some 151 disclosed M&As were worth less than USD 100 mn, and only one topped USD 500 mn.

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MARKETS THIS MORNING-

Asian markets showed mixed results this morning, with South Korea’s Kospi dropping around 1%, while MSCI’s gauge of Asian equities remained broadly steady. Japan’s stock market is closed today in observance of a national holiday. Meanwhile, US equity-index futures edged lower overall, following fading optimism regarding a US-Iran truce.

TASI	10,846	+0.3% (YTD: +3.4%)
MSCI Tadawul 30	1,459	+0.3% (YTD: +5.2%)
NomuC	21,824	-0.5% (YTD: -6.3%)
USD : SAR (SAMA)	USD 3.75 Sell	USD 3.75 Buy
Interest rates	4.25% repo	3.75% reverse repo
EGX30	54,876	-0.5% (YTD: +31.2%)
ADX	10,085	-0.1% (YTD: -0.9%)
DFM	5,901	-0.7% (YTD: -2.4%)
S&P 500	7,753	-0.1% (YTD: +13.3%)
FTSE 100	10,863	-0.4% (YTD: +9.4%)
Euro Stoxx 50	6,536	+0.2% (YTD: +12.8%)
Brent crude	USD 87.72	+5.0%
Natural gas (Nymex)	USD 2.79	+5.0%
Gold	USD 4,420	+0.5%
BTC	USD 63,985	-1.9% (YTD: -26.9%)
Sukuk/bond market index	908.88	+0.1% (YTD: -1.1%)
S&P MENA Bond & Sukuk	150.98	+0.0% (YTD: -0.6%)
VIX (Fear gauge)	15.46	+3.8% (YTD: +3.4%)

THE CLOSING BELL: TADAWUL-

The TASI rose 0.3% yesterday on turnover of SAR 5.3 bn. The index is up 3.4% YTD.

In the green: Saudi Enaya Cooperative Ins. (+9.9%), Saudi Arabian Mining (+5.4%), and Rabigh Refining and Petrochemical (+5.3%).

In the red: Maharah Human Resources (-8.6%), Saudi Manpower Solutions (-7.4%), and Arabian Contracting Services (-4.3%).

THE CLOSING BELL: NOMU-

The NomuC fell 0.5% yesterday on turnover of SAR 16.0 mn. The index is down 6.3% YTD.

In the green: Neft Alsharq Company for Chemical Industries (+9.8%), National Building and Marketing (+9.2%), and Naba Alsaha Medical Services (+6.9%).

In the red: Abdulaziz Bin Ahmed Altwijri Trading (-10.1%), Digital Research (-9.8%), and Mufeed (-9.8%).

CALENDAR

AUGUST

30 August-1 September (Sunday-Tuesday): Saudi Paper and Packaging Expo, Riyadh International Convention & Exhibition Center.

31 August-3 September (Monday-Thursday): Leap Tech Conference, Riyadh Exhibition & Convention Center - Malham.

SEPTEMBER

8-10 September (Tuesday-Thursday): The WTM Spotlight Riyadh, Riyadh Front Exhibition & Conference Center (RFECC), Riyadh.

15-17 September (Tuesday-Thursday) The Global AI Summit, King Abdulaziz International Convention Center, Riyadh.

23 September (Wednesday): Saudi National Day.

28 September-1 October (Monday-Thursday): The International Conference on Theory and Practice of Electronic Governance (ICEGOV), Prince Sultan University, Riyadh.

OCTOBER

25-26 October (Sunday-Monday): The Global Proptech Summit, Mandarin Oriental Al Faisaliah Hotel, Riyadh.

26-28 October (Monday-Wednesday): ACHEMA Middle East, Riyadh International Convention & Exhibition Center.

26-29 October (Monday-Thursday): The Future Investment Initiative, King Abdulaziz International Conference Center, Riyadh.

28-29 October (Wednesday-Thursday): Procurement and Supply Chain Futures Forum, Mandarin Oriental Al Faisaliah Hotel, Riyadh.

28-29 October (Wednesday-Thursday): Real Estate Supply Chain Forum, Mandarin Oriental Al Faisaliah Hotel, Riyadh.

30 October-1 November (Friday-Sunday): The New Global Sport Conference, Sofitel Hotel & Convention Centre, Riyadh.

NOVEMBER

11-12 November (Wednesday-Thursday): Aluminum Arabia, The Arena, Riyadh.

16-19 November (Monday-Thursday): Cityscape Global, Riyadh Exhibition and Convention Centre (Malham), Riyadh.

29 November-1 December (Sunday-Tuesday): The UN Trade and Development Global Supply Chain Forum, Riyadh.

Signposted to happen sometime in 2026:

2H: Sabic’s USD 6.4 bn Fujian project in China to start production;
November: The Esports Nations Cup, Riyadh;
The World Economic Forum’s Global Collaboration and Growth Meeting, Jeddah;

2027

FEBRUARY

1-3 February (Monday-Wednesday): Energy Regulators Regional Association annual conference, Riyadh.

MARCH

21-25 March (Sunday-Thursday):The World Water Forum, Riyadh.

22–24 March (Monday-Wednesday): Capital Markets Forum, Four Seasons Hotel, Riyadh

APRIL

26-29 April (Monday-Thursday): World Energy Congress, Riyadh.

JUNE

1-3 June (Tuesday-Thursday): The Saudi Entertainment and Amusement Expo, Riyadh Front Exhibition and Conference Center.

Signposted to happen sometime in 2027:

The Ocean Race finishes in Amaala on the Red Sea;
Riyadh-Kudmi transmission line to be completed;
Aero Middle East and Sand & Fun takes place in Thumamah Airport, Riyadh.

Signposted to happen sometime in 2Q 2027:

The Hail Region Water Networks Project is expected to be completed.

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