NCB Returns to International Sukuk Market with Benchmark US$1.256bn Mudaraba Sukuk as Saudi Arabia Leads from the Front in Early 2021 Sukuk Issuances

Saudi Arabia’s National Commercial Bank (NCB) returned to the international market with a further Tier 1 US$1.25 billion Mudaraba Sukuk offering on 26 January 2021. The Sukuk certificates were issued through NCB Tier 1 Sukuk Limited, a wholly-owned special purpose vehicle incorporated in the Cayman Islands as Trustee in December 2020.

In a disclosure to the Saudi Stock Exchange (Tadawul), NCB said that the perpetual Sukuk was priced at a final profit rate of 3.50% per annum from (and including) the issue date up to (but excluding) 26 January 2027, after initial price guidance was set at 4.125%. The rate of return will then be reset on 26 January 2027 and every six years thereafter. The pricing is considered by bankers as the lowest-ever launch yield for perpetual bonds out of the Gulf Cooperation Council (GCC) market.

The Sukuk certificates are perpetual securities and accordingly do not have a fixed or final redemption date. They may be redeemed early due to a capital event, tax event or at the option of the bank as described in the terms and conditions of the Sukuk.

The bank mandated Citigroup Global Markets Limited, Emirates NBD Capital, Goldman Sachs International, J.P. Morgan Securities plc, MUFG Securities EMEA plc, NCB Capital Company and Standard Chartered Bank in December 2020 as Joint Lead Managers and Bookrunners to a arrange a series of investor calls and virtual meetings for the transaction.

According to the offer documents, the net proceeds of the issue of the Certificates will be paid by the Trustee (as Rab-al-Maal) to the Bank (as Mudareb) as Mudaraba Capital pursuant to the terms of the Mudaraba Agreement and will be used by the Bank “to enhance its Tier 1 Capital as well as for general corporate purposes, all in accordance with the investment plan set out in the Mudaraba Agreement.”

The Sukuk as expected received a good response from the market in search of A-rated paper. The order book reached US$5.3 billion with the transaction oversubscribed 5.3 times from the indicated launch amount of US$1 billion.

The certificates have been assigned long term ratings of “A-” with a negative outlook by Fitch, “A1” with a negative outlook by Moody’s, “A+” with a stable outlook by Capital Intelligence and “BBB+” with a positive outlook by Standard & Poor’s, in line with their ratings of the bank.

The certificates are listed on the International Securities Market (ISM) of the London Stock Exchange for trading. 

The issuance will be the last foray of NCB as a standalone bank in the international Sukuk market. In October 2020, NCB reached a merger agreement with Samba Financial Group which will create Saudi Arabia’s biggest bank with US$223 billion in assets, with a local market share of 32% of Saudi banking assets. The two banks expect the merger to complete during the first half of this year, subject to final regulatory approvals, under the new name, Saudi National Bank (SNB).

At end September 2020, NCB reported total assets amounting to SAR577.084 billion, with customer deposits reaching SAR408.47 billion and financing and advances to customers totalling SAR336.9 billion. In the nine months ended 30 September 2020, the Group’s total operating income was SAR15,709 million and its net income for the period after zakat and income tax was SAR8,189 million, compared to SAR14,998 million and SAR8,047 million respectively in the corresponding period in 2019.

SNB’s dominance in the Saudi market, and its reach through branches and affiliates in London, Singapore, Dubai and Turkey, makes it potentially a major player in the future Islamic capital market (ICM) in the Kingdom. The ICM is dominated by sovereign domestic and international Sukuk issuances, bank issues to boost Tier I and II capital and balance sheet purposes and corporate issuances to refinance existing more costly debt and for expansion and working capital purposes.

SNB is important in one other aspect, especially the NCB legacy. The bank and its subsidiaries largely provide Sharia’a-compliant banking services in addition to some conventional banking products, following the Board decision in 2006 to start converting the bank’s operations into a full-fledged Islamic financial institution. The objective of the Group is to eventually provide a full range of Sharia’a-compliant banking and investment management services.

The Group also provides non-special commission-based banking products in compliance with Sharia’a rules, which are approved and supervised by an independent Shariah Board. The Islamic financing products offered by the bank span all business groups, including all retail products offered by the bank branch network since its conversion in 2006, including Islamic modes of financing such as Tawarruq, Murabaha, Ijara, Istisna and Wakala.

In the ICM, NCB has been a pioneer of Islamic equity and other investment funds under its Al Ahli brand. Its Al Ahli Global Trading Equity Fund was the first and remains the largest of its kind and in its peak years had an AUM in excess of US$2 billion.

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