Saudi DMO Issues Debut Domestic Sovereign US$3.1bn Sukuk with a 30-Year Maturity as Issuance Reaches US$9.12bn for First Four Months in 2019, whilst Fees for Issuance and Listing Drops

The standout feature of the on-going domestic sovereign Sukuk issuance by the Saudi Ministry of Finance, through its Debt Management Office (DMO), in April 2019 is the issuance of a tranche of a debut Riyal-denominated Sukuk with a 30-year maturity.

The longer maturities, according to the DMO, will be a feature of domestic sovereign Sukuk issuance going forward. The latest Sukuk issuance on 25 April 2019 was a four-tranche offering totaling SR11.619 billion (US$3.10 billion), issued under the Saudi Arabian Government’s unlimited SR-denominated Sukuk Programme.

The issuance comprised a Five-year first tranche of SR0.768 billion (US$205.04 million) maturing in 2024; a 9-year second tranche of SR0.918 billion (US$245.09 million) maturing in 2028; a 15-year third tranche of SR0.686 billion (US$183.15 million) maturing in 2034; and a 30-year fourth tranche of SR9.247 billion (US$2.47 billion) maturing in 2049. As such the 30-year tranche accounts for 79.6 per cent of the total April 2019 offering of SR11.619 billion.

“This Sukuk issuance,” said the DMO in a statement, “will be valuable for long-term financing pricing in the Kingdom and that it will support infrastructure projects, as well as public and private sector debt issuances.”

This is the fourth consecutive monthly domestic Sukuk issued by the DMO thus far in 2019, bringing the total domestic sovereign Sukuk issued from January to April 2019 to SR34.165 billion (US$9.12 billion).  This maintains the Kingdom’s pre-eminence as the most prolific issuer of sovereign Sukuk in the world.

“The 15-year issuance,” said the DMO, “represents a new benchmark for potential government and private sector issuers to enable them to price off the government’s extended yield curve.  In addition it creates demand in the market (alongside the conventional bank lending) for these tenors, which will translate into a new source of financing, especially during the transformation that the economy of the Kingdom is undergoing, which could be used to support financing long-term projects such as infrastructure projects, mortgage market, and other types of long term projects.”

The 30-year issuance is “expected to be a reference point to price mortgage and savings products by having it as a risk-free point on which price models are based on” and will also provide new investment products for the local market creating a new investor base such as pension funds, endowments, and insurance companies, added the DMO in a statement.

“All of these issuances constitute a key pillar in supporting and developing the local debt market by building a yield curve,” said the DMO.  In pursuit of this policy objective, the Capital Market Authority (CMA) of Saudi Arabia, the Saudi Stock Exchange (Tadawul), and the DMO are making changes to Sukuk and bonds fees to stimulate the development of the local debt market.

In a joint statement in April 2019, Senior executives of the above three entities announced changes to fees for issuers, members and investors, that will come into effect 9 June 2019, which the market in the Kingdom has welcomed and stressed would further consolidate Sukuk issuances. Chairman of the CMA Mohammed Al Kuwaiz said the changes are meant to enhance the effectiveness of debt instruments to advance the capital market, in line with Vision 2030. “This restructuring of fees showcases this cooperation to stimulate development of the debt market and encourage Sukuk and bonds issuance and trading,” he added in a statement.

Changes for issuers include a reduction of the minimum fee required for annual listing of first issuances on Tadawul, from 30,000 Saudi Riyals to 10,000 Riyals. For first issuances, Tadawul will introduce a cap of 50,000 Riyals for annual listing fees.

For following issuances, fees for annual listing will drop to 5,000 Riyals as a minimum fee, down from 30,000 Riyals. Tadawul will introduce a cap of 25,000 Riyals as annual listing fees for following issuances. Annual registry fees paid by issuers to the Securities Depository Center (Edaa) will plunge from 100,000 Riyals to 20,000 Riyals for listed Sukuk and bonds.

Sukuk and bonds trading commission will be reduced from 2bps to 1 bps of their traded value, and Edaa will introduce a safekeeping fee of 0.4 bps for listed Sukuk and bonds holdings per year in an effort to increase trading in the secondary market.

Tadawul CEO Khalid Al Hussan said the changes will encourage issuers to list more local currency Sukuk and bonds in the public debt market and facilitate increased trading by investors, which will result in greater market liquidity. “Increased liquidity of the debt market will, in turn, contribute to the issuance of more diversified debt instruments and introduction of new asset classes for investors,” said he added.

All these achievements, added the DMO, are also in line with the Kingdom’s Financial Sector Development Programme to enable financial institutions to support private sector growth and meet the objectives of Saudi Arabia Vision 2030.

All the Saudi Riyal Sukuk issuances are now listed on the Saudi Stock Exchange (Tadawul) for trading, with the hope this will develop into a robust secondary market especially for domestic issuances.  The Kingdom’s domestic Sukuk issuance programme is set to continue at least for the next five years as Riyadh aims to achieve a balanced budget in 2023.

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