The Sukuk market in 2022 has started with a big bang continuing where it had left off in a record 2021 with US$252.3 billion of primary issuances, according to Fitch Rating’s latest Sukuk Dashboard. The fact that Saudi Arabia is leading from the front as a major issuer – both sovereign and corporate – is not surprising.
Saudi banking sources stress that the demand dynamic for Islamic finance and Sukuk as a fundraising and capital boosting instrument is very robust thanks to the support and encouragement of the Ministry of Finance, the Saudi Central Bank (SAMA), the Capital Market Authority and the National Debt Management Centre (NDMC), the entry of foreign primary dealers in the domestic market and the migration of the younger generation professionals to Islamic consumer and corporate finance.
Al Rajhi Bank, the largest Islamic bank in the world in terms of assets, successfully completed the issuance of a Perpetual Saudi Riyal-denominated Tier 1 SAR6.5 billion Sukuk (US$1,732.30 million) on 19 January 2022. The issuance marks the largest issuance by a financial institution in the Kingdom and is the first of its kind in the bank’s history. “Due to significant investor demand, the Bank has decided to increase the issuance size to an aggregate principal amount of SAR6,500 million,” said Al Rajhi Bank.
The issuance, which was distributed by way of private placement to eligible local and foreign investors, was priced at a fixed profit rate of 3.5% per annum payable quarterly.
The Bank in a disclosure to the Tadawul (Saudi Stock Exchange) on 30 December 2021 announced its intention to issue a Sukuk in the domestic market through private placement following approval of its Board of Directors two weeks earlier and the approval of the Capital Market Authority of Saudi Arabia. It mandated Al Rajhi Capital Company as Sole Lead Manager and Bookrunner to the transaction to arrange a series of investor meetings and calls.
Al Rajhi Bank achieved a new global milestone and became one of the top 15 banks globally in terms of market capitalization in December 2021. The bank also topped others in the Middle East by reaching the highest market cap which amounted to about SAR355 billion (US$95 billion) as of 16 December 2021. Going forward, one area where Al Rajhi Bank wants to further consolidate its pole position is trade finance, following the signing of a SAR1.4 billion export credit insurance agreement with the Saudi Export-Import Bank to enhance the provision of documentary credits to corporate customers.
What was notable about the transaction was not only its issuance size, which is the largest by a financial institution in the Kingdom, but also the diversity of investors in the order book. According to Abdullah Suliman Al Rajhi, Chairman of Al Rajhi Bank, “the number of participants reached an unprecedented number of more than 600 investors of qualified individual investors, corporates, and financial institutions, which reflects the valuable trust in Al Rajhi Bank.”
He also revealed that the qualified individual investors’ orders have been fully allocated which constitutes 38% of the total issuance, “as an initiative to diversify the investor base by furthering the integration and participation of qualified individual investors in the local Sukuk market, contributing to the goals of the Kingdom’s Vision 2030 through the Financial Sector Development Program, which aims to diversify the sources of income and stimulates the investment climate.”
The proceeds from the issuance, according to Al Rajhi Bank “will be used to support the Bank’s capital base and fulfil the Bank’s financial and strategic needs.”
Al Rajhi Bank in early February 2022 reported a 39.165% increase in net profits from SAR10,596 million in financial year ending 31 December 2020 to SAR14,746 million in the same period in 2021. Similarly, total assets increased by 33.028% from SAR468,825 million to SAR623,672 million in the same period.
Total income from Special Commissions/Financing & Investments was on the same trajectory increasing by 23.385% reaching SAR 21,442 million last year from SAR17,378 million in the previous year. “Net income increased due to an increase in total operating income by 24.1% caused by an increase in net Financing and Investment income, income fees from banking services, other operating income, and exchange income. In contrast, total operating expenses increased by 4.1% due to an increase in salaries and employees related benefits expenses, depreciation expenses, and general and other administrative expenses,” explained the Bank.
In addition, there was an increase in impairment charge for financing from SAR 2,166 million to SAR 2,345 million by 8.3%.
Al Rajhi Bank’s pre-eminence in the Saudi and regional banking sector, is further underlined by the buoyancy of its deposit growth which in 2021 increased year-on-year by a robust 33.829% to SAR512,072 million from SAR382,631 million in 2020.
The bank achieved a return on average assets of 2.7%, while the return on average shareholders’ equity was 23.9%, and earnings per share amounted to SAR 5.9.