Saudi Arabia closes $2.2bn June sukuk program

Saudi Arabia closes $2.2bn June sukuk program
Khalid Al-Bihlal, head of S&P Global Ratings KSA, says a gradual deepening of the local capital markets is likely to increase their transparency in coming years. (Shutterstock)
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Updated 16 June 2021

Saudi Arabia closes $2.2bn June sukuk program

Saudi Arabia closes $2.2bn June sukuk program
  • Ratings agency predicts growth for Kingdom’s debt capital market

RIYADH: Saudi Arabia’s National Debt Management Center on Tuesday closed the June 2021 issuance for the government’s Saudi riyal-denominated sukuk, valued at SR8.265 billion ($2.20 billion), as the Kingdom continued to embrace the capital debt market.

The sukuk — or Islamic bonds — were divided into three tranches. The first amounted to SR2.755 billion and will mature in 2028, the second tranche of SR4.650 billion will mature in 2031, and the third of SR860 million in 2035.

Saudi Arabia has been increasingly more active in the sukuk markets in recent days.

ACWA Power, the utility developer backed by the Kingdom’s Public Investment Fund (PIF), on Tuesday announced it had raised SR2.8 billion from its first-ever sukuk issuance. The sukuk will have a seven-year tenor and was 1.8 times oversubscribed, the company said in a statement. Fund managers, government funds, and insurance companies accounted for about 30 percent of investors.

Paddy Padmanathan, president and CEO of ACWA Power, said: “The success of the issuance is proof of the wider market’s faith in Saudi Arabia’s bond market and ACWA Power’s strong credit fundamentals, which have attracted a diverse pool of sophisticated investors.”

At the same time, Saudi Aramco recently raised another $6 billion in its first US dollar-denominated sukuk sale. The energy giant sold $1 billion in a three-year tranche, $2 billion in a five-year portion, and $3 billion in 10-year paper. It was Aramco’s third bond issuance, following its debut $12 billion bond in 2019 and an $8 billion, five-part transaction in November last year.

Faisal Faeq, an Arab News columnist and energy adviser who formerly worked with Saudi Aramco and the OPEC Secretariat, said: “From the first day of the announcement, the sukuk offering was oversubscribed by about 10 times by high-rated investors.

“Though the figure is not yet confirmed, this clearly shows the international bond market trusts Saudi Aramco’s business decisions, as it enjoys a high degree of profitability and operational flexibility.”

Khalid Al-Bihlal, head of S&P Global Ratings KSA, told Arab News that Saudi Arabia’s debt capital market was expected to grow as the Kingdom implemented its Vision 2030 goals.

“Driving growth of the Kingdom’s capital markets will be an increase in bond issuance to help fund the SR12 trillion Vision 2030. We project a gradual rise in the use of Saudi Arabian riyal-denominated bond issuance as the local capital markets develop. The US dollar is currently the currency of choice for such bonds.

“A gradual deepening of the local capital markets would likely increase their transparency and could reinforce corporate governance practices in Saudi Arabia in coming years,” he said.