Alrajhi Bank Raises SAR10bn (US$2.66bn) Through its Second Perpetual Tier 1 Tawarruq/Mudaraba Riyal-denominated Sukuk to Date in 2022

Saudi Arabia’s Alrajhi Bank, the largest Islamic bank in the world in terms of assets, successfully completed its second Saudi riyal denominated Sukuk offering in 2022 when it raised SAR10 billion (US$2.66 billion) in a transaction at end October.

In a disclosure to Saudi Stock Exchange (Tadawul), Alrajhi Bank confirmed that it had completed the offering and subscription of the Sukuk by way of a public offer. The SAR10 billion Perpetual Saudi Riyal-denominated Tier 1 Hybrid Tawarruq/Mudaraba Sukuk was priced at profit rate return of 5.50% per annum fixed rate payable quarterly. After the first reset of the rate of return on 16 November 2027, the rate of return will then be reset every five years.

The Sukuk was issued under Al Rajhi Banking and Investment Corporation’s SAR40 billion Additional Tier 1 Capital Sukuk Programme and offered to “eligible natural and legal persons in the Kingdom and any other relevant jurisdiction.” The Tier 1 Sukuk shares many characteristics with equity instruments, such as ordinary shares in companies, including Zakat treatment.

The Sukuk of each Series are perpetual securities and accordingly do not have a mandatory fixed redemption date. The Sukuk are callable in five years by the Bank. Alrajhi Bank had initially intended to raise SAR4 billion through the transaction, but due to significant investor demand, the Bank decided to increase the issuance size to an aggregate principal amount of SAR10 billion. The Sukuk certificates are aimed at subscription by both institutional and retail investors.

The Bank issued a similar Perpetual Saudi Riyal-denominated Tier 1 SAR6.5 billion Sukuk (US$1,732.30 million) on 19 January 2022. 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.

This brings the total raised through Sukuk issuances by Alrajhi Bank in 2022 thus far to SAR16.5 billion (US$4.439 billion).

This latest SAR10 billion transaction marks the largest issuance by a financial institution in the Kingdom and is the second of its kind in the Bank’s history. “On the back of the Bank’s successful previous private issuance in January 2022, and the significant turnout by investors at that time, Alrajhi Bank decided to make this a public subscription. Due to this, it will be listed on the Saudi Stock Exchange (Tadawul), and hence investors will be able to actively trade and invest in the Sukuk. This will create liquidity for the Sukuk and provide a greater opportunity for investors in general, and retail investors in particular,” said Alrajhi Bank in a statement.

The net proceeds of the issue of each Series of Sukuk, according to the final prospectus, will be contributed by the Sukukholders’ Agent (as Rab-al-Maal) to the Issuer (as Mudareb) as Mudaraba Capital pursuant to the terms of the Master Mudaraba Agreement and will be used by the Issuer to enhance its Tier 1 Capital as well as for general corporate purposes, all in accordance with the investment plan set out in the Master Mudaraba Agreement.

Alrajhi Bank in a disclosure to Tadawul in early October 2022 announced its intention to issues a Sukuk in the domestic market through a public offering 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. The Sukuk certificates are listed on Tadawul for trading.

Alrajhi 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 Alrajhi 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.

Alrajhi Bank in October 2022 announced a net income of SAR4,355 million in the Third Quarter 2022, up from SAR3,794 million in the same quarter last year, a 14.8% increase. As such, the Bank’s total profits for the first nine months of this year increased to SAR12,746 million, up from SAR10,734 million for the same period of 2021, with an increase of 18.7%.

Total operating income increased by 13.0% in the first nine months of the current year compared to the same period last year due to an increase in net financing and investment income, and banking services fees. The bank also strengthened its conservative financial policy and set aside additional financial provisions, which reflected positively on its financial strength, as the coverage ratio of non-performing loans exceeded 272%.

Al Rajhi also stated that shareholders’ equity increased by 35.4% to reach SAR 86 billion; total assets increased by 27.1% to SAR741 billion, and net financing assets increased by 32.4% to SAR557 billion over the same period. Customer deposits similarly increased by 16.2% to reach SAR556 billion at the end of the first nine months.

A notable achievement in Q3 2022 according to Alrajhi Bank Chairman, Abdullah bin Sulaiman Al Rajhi, is the successful closing of a Murabaha crowdfunding operation in line with environmental, social, and governance (ESG) practices, with a value of more than US$1 billion raised for a period of 3 years.

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