Saudi Arabia has announced a series of strategic steps to enhance its debt capital market, including potential tax reductions aimed at making local corporate bonds more attractive to foreign investors.

The Capital Market Authority (CMA) is contemplating the elimination of a 5 percent withholding tax on interest payments, which it deems 'unappealing' and 'discouraging' to investment, as highlighted in a report detailing its strategy for developing the nation's debt capital market.

Additionally, the CMA plans to streamline the regulatory process for debt offerings, making it less costly and time-consuming for companies to issue bonds. There are also considerations for organizing trading, settlement, and clearing in foreign currencies.

These initiatives are integral to Saudi Crown Prince Mohammed bin Salman's economic transformation plan, which aims to establish advanced capital markets and develop new industries like tourism and semiconductors to diversify the kingdom's revenue streams.

While the equity market has shown strength, partly due to a robust environment for initial public offerings, the debt market is still in its early stages. The CMA noted that the local corporate debt market has grown by about 8 percent annually since 2019, primarily through unlisted issuances rather than public offerings.

By eliminating the withholding tax, the CMA hopes to broaden the investor base, which is currently dominated by banks, to include more individual and foreign investors.

This week's secondary offering of shares in oil giant Saudi Aramco may indicate that Saudi Arabia's markets are becoming more attractive to international investors. Foreigners were allocated about 60 percent of the shares on offer, marking a significant shift from the 2019 listing, which primarily attracted local interest.