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Investing.com -- On March 14, 2025, S&P Global Ratings upgraded Saudi Arabia’s sovereign rating to ’A+’ from ’A’, indicating an improved governance and institutional structure, as well as the growth of domestic capital markets under the Vision 2030 program. This upgrade has had a ripple effect on the Saudi Real Estate Refinance Co. (SRC), whose rating has been raised to ’A’ from ’A-’, reflecting a high probability of extraordinary support from the government.
The five-notch uplift from SRC’s standalone credit profile of ’bb+’ is a result of the company’s status as a government-related entity (GRE). The ’A’ global scale rating also takes into account the company’s integral relationship with Saudi Arabia and its significant role in the kingdom’s strategic objectives, particularly in increasing home ownership. SRC is wholly owned by Saudi Arabia’s Public Investment Fund (PIF), the nation’s primary sovereign wealth fund, which manages an estimated $925 billion in assets.
Saudi Arabia’s ’A+’ sovereign rating reflects a transformative shift towards increased investment and diversification, reducing the country’s dependence on hydrocarbons. The shift is expected to stimulate consumption and enhance productivity in sectors such as manufacturing, logistics, and mining, thereby fostering a more resilient and diversified economy that creates jobs and boosts workforce participation.
SRC’s role in the local capital market development is also noteworthy. In February 2025, the company successfully launched a $2 billion international sukuk offering, following its Saudi riyal (SAR) 20 billion local sukuk issuances. Both issuances were backed by a government guarantee. As the regulatory framework develops, SRC is expected to further expand the kingdom’s real estate financing options with residential mortgage-backed securities.
Despite slower-than-expected mortgage sales by Saudi banks, SRC reported a SAR28.8 billion mortgage portfolio at the end of 2024, up from SAR28 billion in 2023. The company’s activity is expected to pick up in 2025 as liquidity remains relatively tight in the banking system and reliance on external funding increases. On February 27, 2025, SRC announced a SAR3.4 billion mortgage portfolio acquisition agreement with the Saudi National Bank.
The stable outlook on SRC’s global and national scale ratings mirrors that of Saudi Arabia, reflecting the expectation that the likelihood of SRC receiving extraordinary support from the kingdom will remain extremely high in the foreseeable future. Future rating upgrades could occur if SRC significantly expands its mortgage portfolio and market share in a rapidly growing mortgage market, or if there are similar upgrades on the sovereign ratings.
However, a downgrade in the sovereign rating could lead to a similar action on SRC. A negative rating action could also occur if SRC’s role for the kingdom is reassessed, leading to a lower likelihood of support, particularly if the company fails to expand its mortgage refinancing book as expected, while market growth remains significant.
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