Banque Saudi Fransi Successfully Closes US$900m Wakalah- Murabaha Sukuk Issuance as Corporate and Bank Offerings Keep Market Resilience and Momentum Going in 2023

Further signs of the momentum and resilience of the Saudi corporate and bank Sukuk market is the US$900 million offering – a RegS senior unsecured Sukuk – in the international market by Banque Saudi Fransi (BSF), which successfully closed on 31 May 2023.

This follows recent Sukuk issuances by Alrahji Bank, Saudi National Bank and Riyad Bank either in the domestic riyal or international US dollar markets, with Bank Al Jazira announcing its intention to access the Sukuk market following approval from its board and the Capital Market Authority.

The Wakalah/Murabaha Sukuk, which has a tenor of 5 years and matures on 22nd May 2028, was issued by BSF Sukuk Company Limited, a wholly owned Cayman Islands incorporated special purpose vehicle of BSF, the obligor, under its US$4 billion Trust Certificate Issuance Programme, arranged on 19th May 2023 by Citigroup, First Abu Dhabi Bank, Goldman Sachs International, HSBC and Saudi Fransi Capital.

Banque Saudi Fransi, one of the largest providers of corporate banking services in Saudi Arabia, mandated Citigroup Global Markets Limited, First Abu Dhabi Bank, Goldman Sachs International, HSBC Bank, Mizuho International and Saudi Fransi Capital to act as Joint Lead Managers and bookrunners for the Sukuk issuance, and to arrange a series of meetings and calls with investor accounts in the UK, Europe, the Middle East, Asia and Offshore US Accounts.

The offer of the Certificates started on 23rd May. The issuance was more than three times oversubscribed, with total orders exceeding US$2.9 billion, reflecting, according to BSF, “the market’s robust appetite and confidence investors place in BSF, leveraging its strong credit profile, innovative, and customized financial solutions. This successful transaction also resulted in the tightest credit spread in Saudi Arabia by any non-Sovereign issuer so far in 2023.

“This landmark achievement is a testament to BSF’s position as a key player in the regional financial landscape. By consistently delivering strong results and leveraging its robust credit profile, BSF continues to spearhead financial growth and foster long-term prosperity, aligning itself with the ever-evolving needs of its clients and contributing to the development of Saudi Arabia’s economy.”

The US dollar-denominated issuance, due to strong investor demand, was eventually priced at an attractive annual yield of 4.75%. The primary purpose of the Sukuk is to cater for BSF’s strategic requirements, notably to support its franchise growth in alignment with Saudi Vision 2030 initiatives and to further enhance BSF’s strong liquidity.

The Certificates are listed on the International Securities Market of the London Stock Exchange plc.

Prior to this latest issuance, BSF issued a 5-year Tier 1 Sukuk amounting to SAR5 billion in 2020. These Sukuk are perpetual securities in respect of which there is no fixed redemption dates and represents an undivided ownership interest of the Sukuk-holders in the Sukuk assets, with each Sakk constituting an unsecured, conditional and subordinated obligation of the Bank classified under equity. However, the Bank shall have the exclusive right to redeem or call the Sukuks in a specific period of time, subject to the terms and conditions stipulated in the Sukuk Agreement. The Sukuk was priced at a profit rate was 4.5% per annum from date of issue up to 2025 and is subject to reset every 5 years.

Banque Saudi Fransi reported net profit for the first quarter ending 31 March 2023 of SAR1,076.4 million (US$286.77 million), compared with SAR874.54 million (US$233.08 million) for the same period in 2022. Similarly, total assets for the period reached SAR240.24 billion (US$64.03 billion) at end March 2023 compared with SAR222.21 billion (US$59.22 billion) at end March 2022. Total operating income increased to SAR2,318.1 million (US$634.61 million) from SAR1,821.04 million (US$485.34 million) in the same period.

The issuance of corporate and bank Sukuk according to recent reports by S&P and Moody’s is projected to be a major driver of the Sukuk market especially in the GCC countries in addition to sovereign issuances. “Although new issuances are predicted to drop in 2023, they will continue to exceed maturing Sukuk. Issuance volumes are expected to come from corporates and banks, particularly in countries implementing transformation initiatives such as Saudi Arabia’s Vision 2030. Issuers with elevated capital requirements, including in Egypt and Turkey, will likely turn to the Sukuk market,” maintained S&P.

Moody’s similarly in its report on corporate Islamic finance on 23rd May 2023 stressed that “cross border corporate Sukuk issuance will be significantly higher than the 2022 lows. Year-to-date cross-border issuance as of 19 May 2023 was US$5.2 billion, around double the issuance volume in full year 2022, and will likely grow further. The increase is driven by companies that postponed issuance last year, companies seeking to refinance near-term maturities, and first-time rated Sukuk issuers looking to diversify funding sources. Companies in the Gulf Cooperation Council (GCC) and Malaysia will account for most of the issuance.”

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