Saudi Arabia raises $1.17bn from June sukuk issuance

Saudi Arabia raises $1.17bn from June sukuk issuance
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Updated 25 June 2024

Saudi Arabia raises $1.17bn from June sukuk issuance

Saudi Arabia raises $1.17bn from June sukuk issuance

RIYADH: Saudi Arabia has completed its riyal-denominated sukuk issuance for June at SR4.4 billion ($1.17 billion), according to the National Debt Management Center.

The Kingdom issued sukuk amounting to SR3.23 billion in May, while it was SR7.39 billion and SR4.4 billion in April and March respectively.

NDMC said that the Shariah-compliant debt product for June was divided into three tranches. The first amounted to SR1.6 billion and the second to SR53 million for sukuk maturing in 2027. The third tranche amounted to SR2.76 billion for sukuk maturing in 2034.

A report released by S&P Global in April said that sukuk issuance globally was expected to hover between the $160 billion to $170 billion mark in 2024, compared to $168.4 billion in 2023 and $179.4 billion in 2022. 

According to the US-based firm, the issuance of the debt product began on a strong footing in 2024, with Saudi Arabia becoming a key contributor to the performance.

The credit-rating agency also noted that the sukuk market will continue to grow in the near term, driven by financing needs in core Islamic finance countries and the ongoing economic transformation programs in nations like the Kingdom.

S&P Global said: “The market has started 2024 on a strong footing, with total issuance reaching $46.8 billion at March 31, 2024, compared with $38.2 billion at March 31, 2023. Saudi Arabia was a key contributor to this performance.

“The drop in issuance volumes in 2023, which mainly resulted from tighter liquidity conditions in Saudi Arabia’s banking system and Indonesia’s lower fiscal deficit, was somewhat compensated (for) by an increase in foreign currency-denominated sukuk issuance.”

An additional report released by Fitch Ratings in April echoed similar views and noted that global sukuk issuance was expected to grow in the coming months of this year.

The organization noted that economic diversification efforts and the rapid development of the debt capital market in the Gulf Cooperation Council region would propel the growth of the sukuk market as 2024 progresses.

Saudi banking sector set for 9% Q2 earnings growth, analyst forecasts 

Saudi banking sector set for 9% Q2 earnings growth, analyst forecasts 
Updated 58 min 40 sec ago

Saudi banking sector set for 9% Q2 earnings growth, analyst forecasts 

Saudi banking sector set for 9% Q2 earnings growth, analyst forecasts 

RIYADH: The Saudi banking sector is poised to witness an earnings rise in the second quarter of 2024, with an anticipated 9 percent annual growth, a financial analyst has forecast.

In an interview with Al Ekhbariya, Hussein Al-Attas voiced confidence in the upcoming performance of the banking division, anticipating significant improvements for the petrochemical industry.

He also noted that consulting firms hold a positive outlook for the second quarter’s results, specifically in the banking, communication, and retail divisions. 

However, while optimism prevails for these three sectors, there are divergent opinions regarding the performance of the cement and petrochemical fields.

The analyst indicated that despite differing views, the sector is expected to show improved performance in the second quarter compared to the same period last year, albeit slightly less than the first three months of this year.

He attributed this slower growth to the fact that many companies underwent periodic maintenance closures in the first quarter, impacting their performance.

In Saudi Arabia, amidst its position as one of the world’s fastest-growing economies, plans for revenue diversification offer banks opportunities to invest in relatively low-risk public and private sector projects. 

The private sector, comprising around 90 percent of total bank assets, continues to expand due to a robust economy, higher oil prices, and ongoing government support, all contributing to anticipated growth in banks’ asset bases.

Moreover, the Kingdom ranks among the world’s leading petrochemical producers, accounting for approximately 7 percent of global supply, as reported by the International Trade Administration.

The industry has grown substantially, solidifying the nation’s role as a primary exporter of petrochemical resources.

However, the sector grapples with challenges, including an uncertain demand recovery amidst high interest rates and weak macroeconomic fundamentals, elevated shipping costs and logistical challenges from ongoing Red Sea issues, and seasonal factors affecting demand.

Al-Attas forecast that notable improvements are anticipated for companies such as SABIC, Advanced, and Yansab, which saw increased sales volumes and completed their first-quarter maintenance.

The analyst noted that these companies were nearly fully operational in the second quarter. Moreover, there have been improvements in certain petrochemical products despite unstable global demand stemming from geopolitical tensions.

According to Al-Jazira Capital’s forecast report, the sector is expected to experience a 95 percent earnings growth compared to the previous quarter, which saw multiple plant shutdowns. SABIC is projected to lead this increase, benefiting from volume recoveries following the first quarter turnarounds.

Additionally, Tasnee and Advanced are anticipated to return to profitability during this period, contributing to the sector’s overall earnings.

Chinese investors embrace Saudi equities as 2 ETFs debut in Shanghai, Shenzhen

Chinese investors embrace Saudi equities as 2 ETFs debut in Shanghai, Shenzhen
Updated 16 July 2024

Chinese investors embrace Saudi equities as 2 ETFs debut in Shanghai, Shenzhen

Chinese investors embrace Saudi equities as 2 ETFs debut in Shanghai, Shenzhen

RIYADH: Chinese investors showed strong interest in Saudi equities as two new exchange-traded funds focused on the Kingdom’s stocks debuted in Shanghai and Shenzhen.  

The feeder funds, operating under the Qualified Domestic Institutional Investor program, began trading on July 16, with both briefly hitting the 10 percent daily limit on their launch day.    

The first fund, CSOP Saudi Arabia ETF QDII, managed by China Southern Asset Management, is listed on the Shenzhen Stock Exchange after raising 634 million Chinese yuan ($87 million).   

The second fund, the Huatai-PineBridge managed CSOP Saudi Arabia ETF QDII, started trading on the Shanghai Stock Exchange after raising 590 million Chinese yuan, Bloomberg reported.   

The new offerings mark a significant step in the deepening economic ties between China and Saudi Arabia, allowing mainland investors to diversify their portfolios with exposure to the Kingdom’s stock market.     

This comes as investor relations between the two nations flourish with China becoming the top greenfield foreign direct investor in Saudi Arabia with investments amounting to $16.8 billion in 2023, a 1,020 percent rise from the previous year.      

The two ETFs indirectly invest in the Kingdom’s stock market through the CSOP Saudi Arabia ETF, which was listed on the Hong Kong Stock Exchange, marking the first Saudi Arabia-focused ETF in the Asia-Pacific region.   

Following their approval from the China Securities Regulatory Commission last month, these funds are designed to facilitate greater international diversification for Chinese investors, particularly in sectors where Saudi Arabia has considerable influence, such as energy and oil.   

“People will pay more attention to Saudi Arabia looking at the energy and financial sector compared with US or Japan investment options,” Mao Wei, chief equity investment officer at China Southern Asset Management Co., told Bloomberg.   

Mainland investors will find it easier to build exposure to Saudi stocks using the funds as they can invest in yuan and find information in Chinese, according to Melody Xian He, deputy chief executive officer at CSOP Asset Management.   

About 20,000 individuals and funds took allocations in the ETFs during an offer period of seven days, she said in an interview.   

As investment links between China and Saudi Arabia deepen, Hong Kong could be “the largest beneficiary of the Saudi China ETF connect program because ETFs that are listed in Saudi Arabia and mainland China could feed back into the Hong Kong ETF,” said Rebecca Sin, an analyst at Bloomberg Intelligence in Hong Kong.   

“The next step of the Saudi China ETF Connect could be that Saudi Arabia asset managers launch a feeder fund,” she added.  

This fund tracks the FTSE Saudi Arabia Index and counts the Kingdom’s sovereign wealth fund among its major investors.  

The Saudi China ETF program aims to facilitate the cross-listing of funds in both countries and the launch of feeder funds, further cementing financial cooperation between the two nations amidst evolving geopolitical landscapes.  

China’s envoy to KSA meets with Saudi finance vice minister

China’s envoy to KSA meets with Saudi finance vice minister
Updated 55 min 25 sec ago

China’s envoy to KSA meets with Saudi finance vice minister

China’s envoy to KSA meets with Saudi finance vice minister

RIYADH: China’s newly appointed ambassador to the Kingdom met with Saudi Arabia’s finance vice minister in Riyadh, signaling that relations between the two countries are set to flourish.

Abdulmuhsen Al-Khalaf welcomed Chang Hua on July 15 at the headquarters of the Ministry of Finance, where the pair discussed joint relations between their nations and ways to enhance them, as well as additional economic and financial topics of common interest, according to the Saudi Finance Ministry.

Diplomatic and economic ties between Saudi Arabia and China have been strengthening in recent years. In November 2023, the Kingdom’s central bank, also known as SAMA, and the People’s Bank of China signed a local currency swap agreement worth $6.93 billion.

Chang Hua arrived in Saudi Arabia on May 10 as the new ambassador of China, replacing Chen Weiqing.

The new envoy, who has previously served as an ambassador to the UAE and Iran, respectively, is now also China’s representative to the Organization of Islamic Cooperation.

Since his arrival, the diplomat has met with a range of Saudi officials to ensure relations between his country and the Kingdom maintain their strength.

He held talks with Saudi Arabia’s Chief of the General Staff, Lt. Gen. Fayyad Al-Ruwaili, on July 11, and the officials reviewed bilateral relations and discussed mutual interests, according to a post by the Saudi Ministry of Defense on its X account.  

Retweeting the post, the Chinese diplomat commented: “China and Saudi Arabia – a comprehensive strategic partnership.” 

Moreover, Hua also met with Saudi Minister of Industry and Mineral Resources, Bandar Alkhorayef. In a post on his X account, he affirmed China’s intent to expand cooperation with Saudi Arabia in industry, mining, and other fields. 

Recently, Saudi Minister of Municipal, Rural Affairs, and Housing, Majid bin Abdullah Al-Hogail, hosted Hua at the ministry’s headquarters in Riyadh. 

During the meeting, attended by officials from both sides, they reviewed bilateral relations and discussed enhancing cooperation in the municipal and housing sectors. 

Al-Hogail emphasized the ministry’s commitment to enhancing strategic partnerships with China in real estate development, contracting, and municipal services. He expressed his aspiration to strengthen and develop the partnership, including forming a joint working team to enhance cooperation. 

Hua expressed pride in the historical diplomatic relations between the Kingdom and China and emphasized his country’s interest in developing commercial and investment relations, and creating joint opportunities in infrastructure and contracting sectors. 

These high-level meetings between Chinese and Saudi officials highlight the deepening ties and shared economic goals of the two nations. With discussions covering finance, defense, industry, and housing, both sides aim to enhance their strategic partnership. 

Global sukuk issuance hits $91.9bn in H1: S&P Global 

Global sukuk issuance hits $91.9bn in H1: S&P Global 
Updated 16 July 2024

Global sukuk issuance hits $91.9bn in H1: S&P Global 

Global sukuk issuance hits $91.9bn in H1: S&P Global 

RIYADH: Global sukuk issuances reached $91.9 billion in the first half of 2024, marking a marginal year-on-year increase of 0.87 percent, driven by issuers from Saudi Arabia and the UAE. 

According to the latest report from S&P Global, foreign currency issuances reached $32.7 billion in the first six months of 2024, marking a 23.8 percent surge compared to the same period the previous year.  

The credit rating agency highlighted that improved visibility on the medium-term trajectory of interest rates has boosted foreign currency-denominated sukuk issuance. 

A sukuk is an Islamic financial certificate that represents ownership of an asset and complies with Shariah law, distinguishing it from conventional bonds. 

Saudi Arabia has strategically expanded its sukuk issuance to diversify financing sources and promote Islamic finance within its economy, supporting infrastructure and economic development while attracting global investors seeking Shariah-compliant opportunities. 

“High financing needs in core Islamic finance countries, stable rates, and improved clarity on the future path of rate cuts explain the continued increase in foreign currency-denominated issuances,” stated S&P Global. 

Its findings follow a recent report by Saudi Arabia’s Capital Market Authority, indicating significant growth in the Kingdom’s sukuk and debt capital market since 2019, exceeding SR30 billion, and achieving an annual growth rate of 7.9 percent. 

Moreover, Saudi Arabia’s National Debt Management Center reported completing the issuance of a riyal-denominated Islamic bond for June totaling SR4.4 billion. The Kingdom had issued sukuk amounting to SR3.23 billion in May, SR7.39 billion in April, and SR4.4 billion in March. 

Global forecast  

Meanwhile, S&P Global has maintained its global sukuk issuance forecast at around $160 billion to $170 billion, buoyed by strong market performance in the first half of 2024. 

The US-based firm emphasized that the Islamic bond market’s steady growth will be propelled by economic diversification initiatives in countries such as Saudi Arabia, as well as the robust expansion of the non-oil sectors in the UAE. 

The report also underscored contributions to the sukuk market’s growth from countries like Oman, Malaysia, and Kuwait. 

It added that geopolitical risks are not expected to adversely impact the issuances of these Shariah-compliant debt products globally. 

“Geopolitical risk has not yet dragged on issuance but could pose some downside risk, though, under our base-case scenario, we do not expect significant disruption,” said the agency.  

S&P noted that the adoption of the Accounting and Auditing Organization for Islamic Financial Institutions’ Sharia Standard 62 might lower issuance volumes in the medium term if it significantly changes the nature and risk profile of sukuk instruments. 

In late 2023, the AAOIFI released its exposure draft of Sharia Standard 62 on sukuk, delaying the industry feedback deadline twice, with the final extension set to July 31, 2024, from March 31, 2024. 

According to the credit rating agency, the proposed draft could potentially alter the nature of the sukuk market and lead to increased fragmentation.  

The guidelines cover Shariah requirements for issuances, asset backing, and ownership transfer. They also address investment structures, financing mechanisms, and trading and settlement procedures. 

“A key requirement of the standard is that the ownership and risks related to the underlying assets are to be transferred to sukuk holders. As such, the market will shift from structures where the contractual obligations of sukuk sponsors underpin the repayment to structures where the underlying assets have a more prominent role,” said S&P Global.  

The report further noted that the adoption of these proposed standards could make these Islamic bonds more expensive than conventional issuances.  

It added: “However, it is difficult to anticipate the appetite for such instruments from both investors and issuers, as well as the legality of moving assets off their balance sheets, given the current market structure. This could either lead to further market fragmentation or worse, issuance could be put on hold until sukuk structures figure out a middle ground.”  

The report, however, added that the adoption of the AAOIFI’s Standard 62 guidelines is unlikely to disrupt existing sukuk, since any changes in contractual obligations are subject to investors’ consent.  

Local issuances  

Despite the growth of foreign issuances, local currency-denominated issuances witnessed a decline of 8.8 percent in the first half of this year compared to the same period in 2023. 

S&P Global noted that this downturn was driven by the drop in local currency issuances in countries like Turkiye, the UAE, and Pakistan.  

“The largest drop of local currency issuances was in Turkiye, where monetary tightening combined with better fiscal policy coordination continues to help rebalance the economy,” said the report.  

It added: “In the UAE, the decline can be explained by lower local-currency denominated issuance by the Federal Government and other authorities. For Pakistan, the issue might be related to a lack of data on issuances in the first half of 2024.”  

On a positive note, the report underscored the growth of Saudi Arabia’s local currency issuance.  

“We have observed that local currency issuance in Saudi Arabia has resumed its growing trend. The government has tapped the market with jumbo issuances and has also started to issue retail sukuk,” added S&P Global.  

On the other hand, financing needs in core Islamic finance countries, stable rates, and improved clarity on the future path of rate cuts drove the continued increase in foreign currency-denominated issuances.  

“We have seen a high issuance volume in Saudi where the government and banks continue to tap into the market to finance various projects related to the economic transformation plan. We now expect the Saudi banking system to shift to a moderate net external debt position in the next few months,” said the report.  

S&P Global added that countries like the UAE, Malaysia, Kuwait and Qatar also witnessed a rise in foreign currency-denominated issuances during the first half of this year.  

Sustainable sukuk  

According to the analysis, the total volume of sustainable sukuk issuance reached $5.2 billion during the first half of 2024, down from $5.7 billion during the same period last year.  

The credit rating agency projected that the volume of these green bonds is expected to hover around $10 billion to $12 billion, barring any significant acceleration in the implementation of net-zero policies by key Islamic finance countries or regulatory actions. 

Sustainable sukuk is a Shariah-compliant financial tool wherein issuers utilize the proceeds solely to finance investments in renewable energy or other environmental assets. 

The report also highlighted that 80 percent of sustainability issuance in the first six months of 2024 came from banks in the Gulf Cooperation Council region as they started pursuing their climate transition journey.  

In May, another analysis by Fitch Ratings projected that the global sukuk market linked to environmental, social, and governance principles is expected to exceed $50 billion in the next two years.  

The credit rating agency noted that the projected growth of the market is driven by new ESG mandates, regulatory frameworks, and government-led sustainability initiatives. 

Fitch also revealed that the GCC debt capital market has reached $940 billion in outstanding sukuk and is steadily approaching the $1 trillion mark. 

Saudi Arabia in top 2 among G20 in ICT development for 2nd consecutive year

Saudi Arabia in top 2 among G20 in ICT development for 2nd consecutive year
Updated 16 July 2024

Saudi Arabia in top 2 among G20 in ICT development for 2nd consecutive year

Saudi Arabia in top 2 among G20 in ICT development for 2nd consecutive year

RIYADH: Saudi Arabia has maintained second place among G20 countries in a UN ICT Development Index, highlighting the resilience of the Kingdom’s digital infrastructure.  

Published by the international organization’s International Telecommunication Union, the ranking tracks the digital development and progress of 170 nations in information and communication technology services through sub-indicators divided into two axes: inclusive and effective communication.   

It also measures the strength of digital infrastructure, according to a statement.  

The analysis also revealed that the Kingdom ranked first among the G20 countries in the effective communication axis and second in the inclusive communication axis, according to the Saudi Press Agency.  

The Kingdom’s Communications, Space, and Technology Commission indicated that Saudi Arabia’s continuous advancement in the index underscores the robustness of its digital infrastructure and its role in propelling the growth and expansion of the digital economy and attracting investment, the SPA report noted.  

This comes as the Kingdom’s communication and technology market is the largest and fastest growing in the Middle East and North Africa region, with an estimated value of SR166 billion ($44.2 billion).

Moreover, the rate of mobile subscriptions in Saudi Arabia has surpassed 198 percent of the population, while the average monthly data consumption per citizen is three times higher than the global average. 

In May, a report from Saudi Arabia’s Digital Government Authority revealed that the country witnessed a 20 percent year-on-year increase in government spending on information and communications technology in 2023, reaching SR41.87 billion. 

The study released at the time indicated that the increase in spending has contributed to enhancing the efficiency of digital government services and improving the experience of beneficiaries.    

Additionally, the analysis highlighted at the time that the investment had a positive impact on the digital economy, marking a milestone in the Kingdom’s transformation journey.

“ICT spending is one of the supporting factors for innovative and flexible solutions that we aspire to provide to all citizens and residents of Saudi Arabia, ensuring the effectiveness of the immense human wealth that populates the country and achieving a high quality of life,” Faisal bin Ahmed Bakhshwin, deputy minister for digital transformation at the Ministry of Human Resource and Social Development said at the time.