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Saudi DMO Maintains Domestic Sovereign Sukuk Issuance Momentum with Sixth Consecutive Offering as FH2019 Offerings Surge to US$11 billion

The Debt Management Office (DMO) of the Saudi Ministry of Finance continued its on-going monthly domestic sovereign Sukuk issuance in June with a three-tranche riyal-denominated offering totaling SR2,744 million (US$730 million), maintaining the Kingdom’s standing as the top two regular domestic Sukuk issuers of substance in the market (together with the government of Indonesia).  This is the sixth consecutive monthly domestic Sukuk issued by the DMO thus far in 2019, bringing total issuance in the year to date to SR39.749 billion (US$10.60 billion). 

Following on from its April tranches in which the DMO for the first time issued a Sukuk with a 30-year maturity, this latest transaction (issued under the Saudi Arabian Government’s unlimited SR-denominated Sukuk Programme) comprised a first tranche of SR1,100 million (US$290 million) maturing in June 2028; a second tranche of SR345 million (US$92 million) maturing in June 2031; and a third tranche of SR1,299 million (US$350 million) maturing in June 2034.

The longer maturity according to the DMO “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.” According to local bankers, it seems likely that the Kingdom will take longer than the stated 2023 to balance its budget, given the vagaries of the oil market and geopolitical and demographic pressures.

This in turn would mean Riyadh continuing to access the debt market – both the international conventional bond and domestic and international Sukuk market. While the DMO was preparing to issue a debut €3 billion Eurobond in July 2019, the Director General of the DMO Dr Fahd Al-Saif reiterated that the Kingdom plans to tap the international market with a Sukuk issuance of up to US$5 billion before the end of the year.

The issuance comes on the back of encouraging macro-economic data and forecasts for the Saudi economy going forward by the latest 2019 Article IV Consultations by the International Monetary Fund (IMF) published in May 2019 and the latest Credit Opinion Report on the Kingdom by Moody’s Investors Service.

However, a major boost also came from The Financial Action Task Force (FATF) Plenary Meeting on 21 June 2019 in Orlando, USA, which granted Saudi Arabia full membership of the group – the first Arab country to obtain such status.

Saudi Minister of Finance, Mohammed bin Abdullah Al-Jadaan, commented on the FATF accession that it was “a recognition of the considerable steps the country, SAMA, Anti-Money Laundering Permanent Committee (AMLPC) and other Government ministries and agencies have made in implementing and enforcing Anti Money Laundering Legislation and Counter Terrorism Financing legislation and procedures. This provides another strong indicator of our determination to provide a solid base for our planned financial services growth and to combat money laundering and financing of terrorism and proliferation. However, this is not the end, Saudi Arabia remains fully committed to playing a major role in advancing this agenda in the region and globally.”

All these achievements, according to 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 Tadawul, with the hope this will develop into a robust secondary market 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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