The National Debt Management Center (NDMC) of the Saudi Ministry of Finance (MoF) continued with its monthly domestic sovereign Sukuk issuance in October 2020 with a two-tranche offering totalling SAR270 million (US$71.99 million) on 25 October.
This is the tenth consecutive monthly Sukuk issuance in 2020. Given the persistence of COVID-19 with recurring waves all over the world, debt will continue to feature in Saudi Arabia’s public finances as it will elsewhere.
The NDMC’s 2020 Calendar of Local Sukuk Issuances envisages 12 consecutive monthly issuances of Saudi-riyal denominated sovereign Sukuk. As such, the NDMC will issue similar domestic sovereign Sukuk issuances in November and December 2020. No other jurisdiction is committed to such a dedicated domestic Sukuk issuance regime. In September, the NDMC raised SAR1,245 million (US$331.91 million) through the issuance of a two-tranche offering.
This latest Sukuk issuance in October 2020 also comprised two tranches:
- i) A 7-year Tranche I totaling SAR235 million (US$62.66 million) maturing on 24 October 2027 and priced at a profit rate of 1.73% per annum and a yield of 1.87%. The auction attracted bids totaling SAR 782.8 million (US$208.72 million).
- ii) A 12-year Tranche II totaling SAR35 million (US$9.33 million) maturing on 24 October 2032 and priced at a profit rate of 2.89% per annum and a yield of 2.25%. The auction attracted bids totaling SAR 7,650 billion (US$2,039.75 million).
The Saudi NDMC has a multi-prong government-debt raising strategy, comprising raising more funds from the financial markets through increased domestic and international Sukuk issuances, in addition to international conventional bonds and drawing on their sovereign wealth fund assets. The Kingdom is by far the single most proactive sovereign domestic Sukuk issuer.
All the Kingdom’s sovereign domestic Sukuk issuances come under the unlimited Saudi Arabian Government Saudi Riyal (SR) denominated Sukuk Issuance Programme established on 20 July 2017 by the Ministry and updated on 20 July 2020 “to issue and offer, at its discretion, Sukuk in multiple issuances to investors, pursuant to the Royal Decree approving the National Budget.” The Programme, structured and lead arranged by Alinma Bank, according to the MoF, also comes as part of the DMO’s role in securing Saudi Arabia’s debt financing needs with the best financing costs and would contribute to the development of the Saudi Sukuk and Islamic Capital Markets.
The Saudi sovereign domestic Sukuk issuance is also driven by the high volume of trading of Sukuk certificates in the secondary market on Tadawul (the Saudi Stock Exchange) and allowing these certificates holders to benefit from the Zakat redemption applied within the framework of the local currency Sukuk issuance programme.
According to MoF data, the NDMC issued in the first ten months of 2020 consecutive monthly issuances under the Sukuk Issuance Programme totaling SAR49,598.5 million (US$13,224.99 million) with total bids amounting to SAR73,275 million (US$19,538.11 million).
The continued traction and upward growth trajectory of Saudi domestic Sukuk issuance is driven by robust investor demand and the emergence of tenors of up to 40 years, which is underlined by the high investor oversubscription.
Rating agencies such as Fitch Ratings and Moody’s Investors Services project Sukuk issuances in 2020 to equal if not surpass the 2019 volumes. “As market conditions further recover, we expect sukuk supply to increase and continue to be a significant part of the total funding mix in key Islamic finance jurisdictions. Volume in the full year 2020 is expected to be similar to 2019 levels,” stressed Bashar Al Natoor, Global Head of Islamic Finance at Fitch. This drive is being led by Saudi Arabia and the UAE in the Gulf Cooperation Council (GCC) region and by Malaysia and Indonesia in SE Asia.
“Sovereigns in key Islamic finance jurisdictions, many of whom are net oil exporters, are expected to increasingly issue Sukuk and bonds to fund rising fiscal deficits due to oil price falls (we forecast oil prices to average USD35/bbl in 2020) and coronavirus-related economic disruptions,” he added.
Moody’s in a recent report projects a much greater role for Islamic finance in Saudi Arabia over the next two years, with corporates and households increasingly using Islamic financial products, even as low oil prices and the pandemic crisis cause economic challenges.
“A comprehensive set of Islamic finance regulations have spurred Saudi banks to issue sukuk, Islamic financial products (such as Sukuk, equities, Reits and ETFs) are now listed on the main market, and an Islamic mortgage refinancing business has been established,” said Moody’s.
Saudi government deficit is projected to rise to nearly 11% of GDP in 2020 up from 4.5% in 2019, thanks to the decline in oil revenues due to lower production and oil prices and the economic impact of COVID-19. Gross Saudi government financing is projected to rise to around US$85 billion in 2020 from US$41 billion last year, of which a substantial amount will be raised through Sukuk issuance. Moody’s expects gross government Sukuk issuance to nearly double this year to around US$40 billion from US$21 billion in 2019.
According to data compiled by Mushtak Parker for this newsletter from MoF statistics, the NDMC issued domestic Sukuk totalling SAR49,598.5 million (US$13,224.99 million) in the January-October 2020 period. These were Sukuk issued ONLY under the Government’s Sukuk Issuance Programme.
However, Saudi Arabia also issues Saudi-riyal denominated Sukuk on a standalone basis. In July, for instance, the NDMC raised SAR34,645 million (US$9,236.77 million) from a four-tranche stand alone auction. This means that the total domestic sovereign Sukuk issued by the Saudi government from January-October 2020 amounted to SAR84,243.5 million (US$22,462.13 million), which is a significant 45% increase on the previous year.
Saudi Sovereign Domestic Sukuk Issuance Jan-October 2020
Issuance Date | Volume | Maturity Date | Tenor | Profit Rate/ Final Yield Fixed Rate | Total Bids
|
22 January
| Tranche 1 – SAR715m Tranche 2 – SAR6,005m | 27 January 2027 23 March 2030 |
7 years 10 years | 2.47% pa/ 2.47% 2.69% pa/ 2.82% |
SAR6,750m |
19 February | Tranche 1 – SAR508m Tranche 2 – SAR3,988m | 27 January 2027 24 February 2035 |
7 years 15 years |
2.47% pa/ 2.35 3.00% pa/ 3.00% |
SAR4,496m |
25 March | Tranche 1 – SAR169.5m
Tranche 2 – SAR504m Tranche 3 – SAR14,894m | 23 March 2025
23 March 2030 30 March 2050 |
5 years
10 years 30 years |
2.17% pa/ 1.83
2.69% pa/ 2.64% 3.68% pa/ 3.68% |
SAR16,424m |
22 April | Tranche 1 – SAR1,300m Tranche 2 – SAR4,250m | 27 January 2027 24 February 2035 |
7 years 15 years | 2.47% pa/ 2.09% 3.00% pa/ 3.06% |
SAR5,550m |
13 May | Tranche 1-SAR3,805m Tranche 1 – SAR1,950m | 23 March 2025 23 March 2030 |
5 years 10 years | 2.17% pa/ 1.76% 2.69% pa/ 2.38% |
SAR5,755m |
24 June | Tranche 1 – SAR2,494m
Tranche 2 – SAR3,670m
Tranche 3 – SAR2,331m |
27 Jan 2027
23 March 2030
24 Feb 2035
|
7 years
10 years
15 years | 2.47% pa/ 1.85%
2.69% pa/ 2.26%
3.00% pa/ 2.69% |
SAR8,474m |
27 July | Tranche 1– SAR452m ————— Tranche 2 – SAR548m | 23 March 2025 ———— 27 July 2027
|
5 Years ———— 7 Years
| 2.17% pa/ 1.43% ————– 1.73% pa/ 1.73% |
SAR1,798m |
24 August | Tranche 1 – SAR100m —————- Tranche 2 – SAR400m
|
26 July 2028 —————- 26 July 2035
|
8 Years ————- 15 Years
| 2.29% pa/ 2.13% ————— 3.10% pa/ 3.00%
|
SAR9,868m |
16 September | Tranche 1 – SAR130m —————— Tranche 2 – SAR1,115m |
26 July 2024 ————— 26 July 2032
|
4 Years ————– 12 Years
| 1.64% pa/ 1.50% —————– 2.89% pa/ 2.75% |
SAR12,400m |
21 October | Tranche 1 – SAR235m —————— Tranche 2 – SAR35m |
27 July 2027 ————— 26 July 2032
|
7 Years ————– 12 Years
| 1.73% pa/ 1.87% ——————- 2.89% pa/ 2.25% |
SAR1,760m |
Total First Ten Months 2020 |
SAR49,598.5m US$13,224.99m
|
|
|
|
SAR73,275m US$19,538.11m |
Source: Compiled by Mushtak Parker from Data of the NDMC, Saudi Ministry of Finance October 2020
Saudi Arabia is ahead in tapping the domestic sovereign Sukuk market, because it has an established issuance infrastructure complete with a government policy framework under its Fiscal Balance Programme and Financial Sector Development Programme, whose objectives inter alia is to add to a diversified public debt fund raising strategy and to the development of the Saudi Sukuk and Islamic Capital Market.