Volatile equity markets and low interest rates on deposits in recent years are drawing investors in Saudi Arabia towards bonds, a new asset class poised for growth, a senior investment banker from HSBC said.

Some SR50 billion worth ($13.33 billion) of bonds have been issued in the kingdom from mid-2006 with more issues in the pipeline, Fahad al-Saif, director of investment banking at HSBC Saudi Arabia, said on Wednesday.

"Investors have only two asset classes - equities and deposits in banks. Equities are now volatile and interest rates are low, so they are increasingly turning to bonds, bringing debt allocation into their portfolios," he told reporters at a project finance conference.

Several bonds including sukuk are lined up ahead of being launched by government-backed and private entities, said Saif, adding issuers have started talks with investment bankers.

One of the upcoming issues is by a joint venture including state oil giant, he said without elaborating.

"If the market is disturbed internationally and it remains stable here, you will have more bonds and sukuk," he said.

Saudi Electricity (SEC) is considering to issue its first international sukuk issue early next year, a top official of the company said earlier on Wednesday.

Such an issue will have a good response from overseas investors, said Saif.

"International investors are willing to pursue Saudi assets and SEC is a proxy issuer for the government," he said.

Owned 81 per cent by the government, SEC is rated exactly as the government and is perceived as a vital corporate for the Saudi economy, he said.

"Hence investors have set SEC as proxy and benchmark for the sovereign," he said. – Reuters