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Saudi Arabia Plans to Issue up to US$5bn in International Sukuk in Q3 2019 says DMO Chief

Riyadh  – Saudi Arabia will issue between US$3 billion to US$5 billion in new international Sukuk around the third quarter of 2019 as part of plans to diversify financing of the national budget deficit, confirmed Fahad al-Saif, the Head of the Debt Management Office (DMO) at the Saudi Ministry of Finance.

In an interview with Reuters, al-Saif stressed that about 40 % of the US$31.5 billion in debt raising planned for this year had been issued in the first quarter. “At the end of quarter one, we have reached 55 % local, 45 % international. We believe that the ratios will be more skewed towards the local (debt issues) by the end of this year.  International Sukuk are planned for the third quarter subject to timing, pricing, market conditions and obviously demand and supply,” he added.

The DMO was focused mostly on Saudi Riyals, dollars and possibly euro issuances, he explained.  “Certain markets that we are paying attention to at the moment, do we have them as strict plans?  Not yet. Are we discussing them as part of our medium term debt strategy?  Yes.”

The DMO is also considering in the medium term raising financing backed by foreign export credit agencies, which offer guarantees and sometimes financing to encourage trade and lower the costs of international business.

“There is no strict timeline. We are in discussions. We are getting ourselves into the terminologies and the jargons of the ECA financing type.  We are trying to match what is the right project versus the right financing to be tapped into,” he said.

IILM Issues US$750mn Sukuk in Two Transactions in May Including a New Series of Sukuk with a 3-Week Tenor

Kuala Lumpur – The International Islamic Liquidity Management Corporation (IILM) successfully issued a total of US$750 million in short-term Sukuk in two transactions during May 2019.

In the first transaction on 8 May 2019, the US$600 million Sukuk were rated A-1 by Standard & Poor’s Rating Services and were issued in two tranches comprising:

  1. A US$200 million tranche with a 1-month tenor at a profit rate of 2.63 % (the indicative pricing guidance range was 2.64 % –2.70 %); and
  2. A US$400 million tranche with a 3-month tenor at a profit rate of 2.72 % (with an indicative pricing guidance range of 2.74 % –2.80 %).

According to the IILM, the reissuance was “well supported with demand across the two series of the IILM Sukuk with a bid to cover ratio of 259 % and 248 % for the 1-month and 3-month tenors respectively.”

Purchases by Islamic Primary Dealers (PDs) in the primary auction amounted to 63 % and 74 % for the 1-month and 3-month Sukuk respectively.

In terms of geographical distribution, the allocation of GCC-based PDs stood at 60 % and 70 % for the 1-month and 3-month Sukuk respectively, whereas Asia-based PDs were allocated 40 % and 12 % respectively. The PDs based in other jurisdictions received 18 % for 3-month Sukuk only.

In the second transaction on 23 May 2019, the IILM successfully issued US$150 million in short-term Sukuk similarly rated A1 by S&P under a new series with a 3-week tenor at a 2.54 % per annum profit rate. The new issuance, according to the IILM, will lead to an increase of the total outstanding of the IILM Sukuk in the market to US$2.21 billion from US$2.06 billion previously.

The issuance was well supported with a bid-to-cover ratio of 433 %, the highest to date under the competitive auction methodology. The profit rate achieved for the 3-week Sukuk was 2.54 % compared to the indicative pricing guidance range of 2.55 % – 2.61 %. The purchases by Islamic PDs in the primary auction amounted to about 80 % and the issuance was entirely allocated to GCC-based PDs.

According to the IILM, the primary dealers that participated in the two auctions conducted under the competitive bidding of the Bloomberg AUPD Platform included Abu Dhabi Islamic Bank; Al Baraka Turk Participation Bank; Barwa Bank; Boubyan Bank; CIMB Islamic Bank Berhad; First Abu Dhabi Bank; Kuwait Finance House; Macquarie Bank; Maybank Islamic Berhad; Qatar Islamic Bank; and Standard Chartered Bank.

Brunei Raises US$74m Through Domestic Sukuk Ijarah Issuance

Brunei – The Autoriti Monetari Brunei Darussalam (AMBD) issued its latest BND100 million (US$74.05 million) Sukuk Ijarah in early May 2019. The certificates have a tenor of 91 days and were priced at a rental rate of 1.625 %.  Brunei has to date raised BND12.83 billion (US$9.50 billion) in short-term sovereign domestic Sukuk, of which BND322 million (US$238.44 million) were outstanding at 9 May 2019.

Malaysia’s Cagamas Continues its Bond and Sukuk Issuances for Mortgage Securitisation with Latest Combined RM605mn Issuance

Kuala Lumpur – Cagamas Berhad, the National Mortgage Corporation of Malaysia, one of the most prolific issuers of Sukuk, continues to play a major role in Sukuk issuance and in the Islamic mortgage securitization market in Malaysia with its latest offering in May 2019 – a combined issuance of RM605 million comprising RM300 million 3-month Conventional Commercial Papers (CCPs) and RM305 million 3-month Islamic Commercial Papers (ICPs).

The ICPs, said Cagamas in a statement, will be issued under the Islamic Commodity Murabahah structure. Proceeds from the issuances will be used to fund the purchase of housing loans and Islamic home financing from the domestic financial system.

“Despite heightened volatility in the global bond markets and moderation in growth forecasts,” explained Cagamas President/Chief Executive Officer, Datuk Chung Chee Leong, “liquidity in the local bond markets remains resilient. The CCPs and ICPs represent the first issuance concluded by the Company post Overnight Policy Rate cuts by Bank Negara Malaysia on 7 May 2019. The short-term papers received strong subscription rates as demonstrated by the bid-to-cover ratio of 3.6 times collectively.”

“Both the Conventional and Islamic issuances were priced competitively via public offerings at 2 basis points below the 3-month onshore benchmark Kuala Lumpur Interbank Offered Rate (KLIBOR) or equivalent to an effective yield of 3.44 % per annum based on the pricing date,’’ added Datuk Chung.

The papers, which will be redeemed at their full nominal value upon maturity, are unsecured obligations of the Company, ranking pari passu among themselves and with all other existing unsecured obligations of the company.

Cagamas’ corporate bonds and Sukuk continue to be assigned the highest ratings of AAA and P1 by RAM Rating Services Berhad and AAA/AAAIS and MARC-1/MARC-1IS by Malaysian Rating Corporation Berhad, denoting its strong credit quality.  Cagamas has also been assigned local and foreign currency long-term issuer ratings of A3 by Moody’s that are in line with Malaysian sovereign ratings.

Cagamas is the second largest issuer of debt instruments after the Government of Malaysia and the largest issuer of AAA corporate bonds and Sukuk in the market. Since incorporation in 1986, Cagamas has cumulatively issued circa RM317.6 billion worth of corporate bonds and Sukuk.

 Indonesian Government Issues US$1.4bn of Domestic Sukuk in Six Transactions in May 2019

 Jakarta – The Government of Indonesia continues to consolidate its role as one of the most proactive repeat issuers of sovereign domestic Sukuk in the market with six separate issuances in May 2019 raising IDR19.31 trillion (US$1.4 billion) in the process.

The Department of Islamic Financing at the Directorate General of Budget Financing and Risk Management, Ministry of Finance of Indonesia, is a prolific issuer of Sukuk on behalf of the Government of Indonesia. In the period January to May 2019, the Indonesian Ministry of Finance has raised IDR69.007 trillion (US$4.8 billion) in rupiah-denominated Sukuk and US$2.1 billion is US dollar denominated Sukuk. This is equivalent to a total US$6.9 billion in Sukuk issuances for the period.

The issuances comprised an IDR 5.15 trillion issuance with five tranches of various maturities on 14 May 2019 of Sovereign Shariah Securities (SSS) through the auction system of Bank of Indonesia, for which total incoming bids were IDR20.4626 trillion.

On 15 May 2019, the Government raised IDR3 trillion through a private placement of its 11-Year Sukuk Negara SSS, which carried a yield of 8.5 % and a fixed coupon rate of 8.125 % per annum.

On 21 May 2019, the Government raised a further IDR3 trillion through a private placement of its 11-Year Sukuk Negara SSS, which was issued at a yield of 8.5 % and a fixed coupon rate of 8.75 % per annum.

On 28 May 2019, the Government raised yet a further IDR1.5 trillion through a private placement of its 12-Year Sukuk Negara SSS, which was issued at a yield of 8.55 % and a fixed coupon rate of 8.375 % per annum.

Similarly on 28 May 2019, the Government issued a IDR 5.16 trillion issuance with four tranches of various maturities of SSS through the auction system of Bank of Indonesia for which total incoming bids were IDR13.4814 trillion.

With the final issuance on 29 May 2019, the Government raised yet a further IDR1.5 trillion through a private placement of its 14-Year Sukuk Negara SSS, which was issued at a yield of 8.6 % and a fixed coupon rate of 8.375 % per annum.

Saudi Telecom Successfully Closes its Maiden International Sukuk With Strong Demand Despite Tight Pricing

 Riyadh – Saudi Telecom Company (STC) successfully closed its debut Sukuk in the international market with a US$1.25 billion offering on 5 May 2019.

STC, the largest telecom operator in the Gulf Cooperation Council (GCC) states in terms of assets with a 73 % share of the aggregate revenue of telecommunications providers in Saudi Arabia in 2018, said that the Sukuk has a tenor of 10 years and is priced at a profit rate of 3.89 % per annum.

The Sukuk was issued through STC Sukuk Company Limited, a wholly-owned special purpose vehicle of STC incorporated in the Cayman Islands, and arranged by HSBC Bank plc, J.P Morgan Securities plc, Standard Chartered bank, Samba Capital & Investment Management Company, First Abu Dhabi Bank, and KFH Capital Investment Company, who arranged a series of investor meetings in key locations in London, Europe, the GCC and Asia.

STC launched the transaction on 26 April 2019 and becomes the latest Saudi corporate debutante in the burgeoning Islamic debt issuance market in the region. This Sukuk comes under the US$5 billion Trust Certificates (Sukuk) Issuance Programme established by STC in March 2019.

STC, which is 70 %owned by Saudi Arabia’s state-owned Public Investment Fund, at an initial price guidance of around MS + 155 basis points, with the final pricing tighter by 20 basis points. Nevertheless, the issuance attracted good demand with the order book exceeding US$4.5 billion suggesting continuing pent-up appetite for good quality Islamic paper.

Previously STC has issued domestic Saudi Riyal denominated Sukuk, of which the first one was in 2014 – a SR2 billion issuance under its then SR5 billion Trust Certificates Issuance Programme.

The aim of the Sukuk programme, said STC Group CEO, Eng. Nasser Bin Sulaiman Al Nasser, “is to support the execution of the company’s strategy and future plans. Further, it will help the company to diversify the sources of funding and benefit from the features of international debt capital market in terms of liquidity, competitive pricing and diversification of investors base. In addition, having an international presence in debt capital market through this programme will enhance STC’s financial standing.”

The Sukuk certificates are listed at the Irish Stock Exchange on its Euronext Dublin platform.

APICORP Arranges US$75mn Murabaha Facility for AlFanar Company in Support of its Clean Energy Projects

Riyadh – The Dammam-based Arab Petroleum Investments Corporation (APICORP), the multilateral development bank owned by the ten member nations of the Organization of Arab Petroleum Exporting Countries (OAPEC) and focused on energy investments, signed a strategic 5-year Murabaha financing facility worth US$75 million with Saudi-based Alfanar Company, a leading manufacturer of electrical products and provider of EPC solutions for conventional and renewable energy power plants in the Middle East, Europe and Asia.

The proceeds of the facility will be used in support of Alfanar’s renewables energy projects, including a wind project in Spain.

With an existing portfolio exceeding 1.5 GW of renewable development projects around the globe, Alfanar is committed to further doubling its portfolio in the next few years. As such, said Jamal Wadi, Chief Executive Officer, Alfanar Global Development, “the signing of the Murabaha agreement with APICORP brings us a step closer to realising our commitment. This partnership with APICORP comes at a time when Alfanar is also diversifying its portfolio and venturing into new markets.”

Part of APICORP’s mandate according to Nicolas Thevenot, Managing Director & Head of Corporate Finance, “is encouraging Saudi companies in their pursuit of opportunities beyond their home market. In this particular case, we are happy to support Alfanar towards their renewable energy projects globally. This is in line with APICORP’s focus to support global sustainability through projects driven by environmentally conscious and renewable principles.”

Alfanar is aiming to tap into the growing demand of renewable energy in various countries around the globe. The company aims to deploy 3 GW by 2022 with an intention to grow the portfolio to 4-5 GW by 2025.

Banque Saudi Fransi Arranges SR350m Islamic Credit Facility for Taleem REIT

Jeddah – In a filing with Tadawul, Banque Saudi Fransi has confirmed that it had signed a SR350 million Shariah-compliant facility agreement with Taleem REIT on 30 May 2019.

As a security for the facility, a promissory note and pledge on properties will be provided to Banque Saudi Fransi.

The facility has a tenor of seven years with a bullet repayment on maturity. “The profit rate on the facility,” said Saudi Fransi Capital Financial, which arranged the facility, “will be paid on a quarterly basis starting upon the drawing down of the funds from the bank to purchase any future property for the fund and on a pro rata basis depending on the drawn amount.”

The proceeds of the facility “will be used to finance the REIT Fund’s new acquisitions of income-generating education properties that are located within the Kingdom, which shall reflect positively on the fund’s net income and cash dividends due to the difference between the income generated from acquired properties and the financing cost.”

SRC Gets Sovereign Guarantee Go-ahead from Saudi Ministry of Finance for its Sukuk Issuance Programme

Jeddah – The state-owned mortgage finance corporation, Saudi Real Estate Refinance Co (SRC), has announced that it received confirmation from the Saudi Ministry of Finance that it would obtain sovereign guarantees from the Ministry in support of its planned issuances of Sukuk in 2019.

SRC, a subsidiary of Saudi Arabia’s Public Investment Fund, plans to issue SR4 billion (US$1.07 billion) in Sukuk this year to support its mortgage finance activities through the securitisation of home financing portfolios from mortgage finance companies, thus creating a secondary market and unlocking more liquidity in the housing finance market, including for affordable housing.

In December 2018, SRC set up a SR11 billion (US$2.93 billion) Sukuk programme to increase liquidity in the country’s mortgage market. HSBC Saudi Arabia was appointed as the sole arranger and bookrunner for the Riyal-denominated programme.  The company, in a statement, stressed that it planned to issue several tranches of Sukuk under the programme and the first such issue, of SR750 million, was made in March this year.

The company further stated that it aims to enhance the real estate sector, increase its contribution to GDP, to reach 52 % in 2020.  The real estate market is expected to increase from SR280 billion in 2017 to SR500 billion by 2020. The company aims eventually to refinance 20 %of Saudi Arabia’s primary home loans market, which authorities hope to expand to SR800 billion by 2028, from SR290 billion now.

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