Corporate Sukuk issuances in Saudi Arabia received a major boost when Alrajhi Bank, the world’s largest Islamic bank in terms of both assets and market capitalization, successfully priced its inaugural US$1 billion (SAR3.75 billion) 5-year RegS Senior Unsecured Sustainable Sukuk on 29th March 2023.
This is the first foray of Alrajhi Bank into the international financial markets. Previously Alrajhi Bank raised SAR16.5 billion (US$4.40 billion) in 2022 through two Saudi riyal-denominated Sukuk offerings. The Bank issued a Perpetual Tier 1 SAR6.5 billion Sukuk (US$1,732.30 million) on 19 January 2022, which was distributed by way of private placement to eligible local and foreign investors, and priced at a fixed profit rate of 3.5% per annum payable quarterly.
This was followed by a SAR10 billion (US$2.66 billion) Perpetual Tier 1 Hybrid Tawarruq/Mudaraba Sukuk issuance in October 2022 which was priced at a profit rate return of 5.50% per annum fixed rate payable quarterly. According to Abdullah bin Sulaiman Alrajhi, Chairman of the Board of Directors, “the first transaction of a private Sukuk issuance, worth SAR6.5 billion, attracted over 600 investors, a record in the local market, showing their confidence in the Bank. Additionally, over 125,000 local and foreign investors, including individuals, financial institutions, and companies, subscribed to the first public issuance of Sukuk, with a value of over SAR11 billion and a coverage rate of 300% of the initial issuance amount.”
This latest US$1bn Sukuk was issued under Alrajhi Bank’s US$4 billion Trust Certificates Programme, which was established in April 2022.
Alrajhi Bank in a disclosure to Tadawul (the Saudi Stock Exchange) on 27th March 2023 commenced the marketing of its debut US dollar Sukuk following the announcement of its intention to issue a US dollar Sustainable Sukuk in the international market after approval of its Board of Directors two weeks earlier and the approval of the Capital Market Authority of Saudi Arabia.
The Bank mandated Al Rajhi Capital Company, Citigroup Global Markets Limited, Emirates NBD, Goldman Sachs International, HSBC Bank, J.P. Morgan Securities, KFH Investment Company and Standard Chartered Bank as Joint Lead Managers and Bookrunners to the transaction, and to arrange a series of investor meetings and calls with accounts in London, Europe, the GCC, Asia and Offshore US accounts.
The 5-year Sukuk, which priced at a reoffer yield of 4.774% translating into a profit rate of 4.75% per annum, generated strong demand. It was oversubscribed 3.75 times, indicating significant momentum and interest from global and regional investors in Al Rajhi’s credit.
The robust order book allowed Alrajhi Bank to tighten the pricing by 40 basis points (bps) to 5-year US Treasury + 110bps from an initial price guidance of 150bps, representing the largest price tightening for any GCC financial institution transaction since 2020. The Sukuk was strongly anchored by Middle Eastern investors, who accounted for 49% of the allocation. The issue also witnessed strong demand from high quality international investors – 19% in Asia and 32% elsewhere.
The proceeds from the issuance, according to Alrajhi Bank, will be used to enhance the Bank’s liquidity and support the bank’s business growth especially on the Green and Social sectors which are aligned with the Net Zero and Vision 2030 targets set by the Kingdom of Saudi Arabia. The proceeds will be used also to finance and refinance, in whole or in part, Eligible Sustainable Projects, as set out in the Bank’s Sustainable Finance Framework.
The issue, according to Alrajhi bank, represents the first debt capital market transaction by a financial institution in Central & Eastern Europe, Middle East and Africa following the recent volatility in the global banking sector.
Alrajhi Bank had appointed S&P Global Ratings to assess its Sustainable Finance Framework and its alignment with global funding standards. S&P Global Ratings subsequently issued a Second Party Opinion accordingly.
Waleed Almogbel, Managing Director and CEO of Al Rajhi Bank commented that “the success of this debut Sukuk issuance in these turbulent times reflects the confidence of investors in Alrajhi Bank and the Kingdom’s solid foundations. We are proud to present the bank’s commitment to Sustainable Financing as we look to diversify our funding strategy and are grateful for the support of our local and international investors as part of the large engagement we received during the marketing process for this Sukuk. We also look forward to publishing our annual Allocation and Impact report which will allow investors to further understand the environmental and social benefits this Sukuk transaction will create.”
The sustainable Sukuk certificates are being listed on the London Stock Exchange’s International Securities Market.
Alrajhi Bank in February this year announced a 16% increase in net profits for 2022 to SAR17,151 million, up from SAR14,746 million in the previous year.