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Saudi Government Domestic Sukuk Issuance Rises to SAR48,083.5m (US$12,820.04m) in First Eight Months of 2020

True to its Sukuk issuance calendar for 2020, the National Debt Management Center (NDMC) of the Saudi Ministry of Finance (MoF) continued with its monthly domestic sovereign Sukuk issuance in August 2020 as part of its public debt strategy. The NDMC issued its latest Sukuk raising SAR500 million (US$133.31 million) through the issuance of a two-tranche offering on 22 August.

This is the eighth consecutive monthly Sukuk issuance in 2020 to date. In July, the NDMC raised SAR1,000 million (US$266.61 million) through the issuance of a two-tranche Sukuk. In addition, the NDMC announced the early redemption of a portion of the MoF’s outstanding Sukuk maturing in August, September, November and December of this year with a total value of SAR34,260 million.

But due to strong investor demand, the NDMC issued a new follow-up standalone Sukuk issuance comprising four tranches with a total value of SAR34,645 million (US$9,236.77 million). This was separate to the regular monthly programme of Sukuk issuances, although the stated aim of the NDMC is to merge the issuance of all SAR domestic Sukuk issuance under one programme.

This latest Sukuk issuance in August 2020 comprised two tranches:  

i) An 8-year Tranche 1 totaling SAR100 million (US$26.66 million) maturing on 22 July 2028 and priced at a profit rate of 2.29% per annum and a yield of 2.13%. The auction attracted bids totaling SAR6,125 million (US$1,633.05 million).

ii) A 15-year Tranche 1 totaling SAR400 million (US$106.65 million) maturing on 22 August 2035 and priced at a profit rate of 3.10% per annum and a yield of 3.00%. The auction attracted bids totaling SAR13,515 million (US$3,603.38 million).

The Saudi NDMC has a multi-prong government-debt raising strategy comprising raising more funds from the financial markets including through increased domestic and international Sukuk issuances in addition to international conventional bonds and drawing on their sovereign wealth fund assets. The Kingdom is by far the single most proactive sovereign domestic Sukuk issuer.

All the Kingdom’s sovereign domestic Sukuk issuances come under the unlimited Saudi Arabian Government Saudi Riyal (SR) denominated Sukuk Issuance Programme established on 20 July 2017 by the Ministry but updated  on 20 July 2020 “to issue and offer, at its discretion, Sukuk in multiple issuances to investors, pursuant to the Royal Decree approving the National Budget.” The Programme, structured and lead arranged by Alinma Bank, according to the MoF, also comes as part of the DMO’s role in securing Saudi Arabia’s debt financing needs with the best financing costs and would contribute to the development of the Saudi Sukuk and Islamic Capital Market.

The NDMC’s 2020 Calendar of Local Sukuk Issuances envisages 12 consecutive monthly issuances of Saudi-riyal denominated sovereign Sukuk. No other jurisdiction is committed to such a dedicated domestic Sukuk issuance regime.

The Saudi sovereign domestic Sukuk issuance is also driven by the high volume of trading of Sukuk certificates in the secondary market on Tadawul (the Saudi Stock Exchange) and allowing these certificates holders to benefit from the Zakat redemption applied within the framework of the local currency Sukuk issuance programme.

Compiled from MoF data, the NDMC issued in the first eight months of 2020 consecutive monthly issuances under the Sukuk Issuance Programme totaling SAR48,083.5 million (US$12,820.04 million) with total bids amounting to SAR49,794 million (US$13,276.1 million)

The continued traction and upward growth trajectory of Saudi domestic Sukuk issuance, driven by robust investor demand and the emergence of tenors of up to 40 years, is underlined by the fact that the total funds raised in the first eight months of 2020 is over two thirds of the total raised in 2019.

The Kingdom is feeling the health and economic impact of the COVID-19 pandemic which necessitated the introduction of a SR120 billion (US$31.91 billion) COVID-19 Mitigation Package, increasing VAT from 5% to 15%, and discontinuing a SAR1,000 per month allowance for public servants. This has been exacerbated by the sharp fall in crude oil prices and in the Kingdom’s oil production.

Fitch Ratings forecast Saudi Arabia’s general government debt as a % of GDP rising to 38% in 2020 to 41% in 2021, while at the same time its sovereign net foreign assets as a % of GDP to decline from 78% to 68% in the same period. The Saudi economy is projected to contract by -6% in 2020 before bouncing back to +5.4% in 2021.

Saudi Sovereign Domestic Sukuk Issuance Jan-August 2020

Issuance Date

Volume

Maturity Date

Tenor

Profit Rate/ Final Yield

Fixed Rate

Total Bids

 

22 January

 

 

Tranche 1 – SAR715m

Tranche 2 – SAR6,005m

27 January 2027

23 March 2030

 

7 years

10 years

2.47% pa/ 2.47%

2.69% pa/ 2.82%

 

SAR6,750m

19 February

Tranche 1 – SAR508m

Tranche 2 – SAR3,988m

27 January 2027

24 February

2035

 

7 years

15 years

2.47% pa/ 2.35

3.00% pa/ 3.00%

 

SAR4,496m

25 March

Tranche 1 – SAR169.5m

 

Tranche 2 – SAR504m

Tranche 3 – SAR14,894m

23 March 2025

 

23 March 2030

30 March 2050

 

5 years

 

 

10 years

30 years

2.17% pa/ 1.83

 

2.69% pa/ 2.64%

3.68% pa/ 3.68%

 

 

 

SAR16,424m

22 April

Tranche 1 – SAR1,300m

Tranche 2 – SAR4,250m

27 January 2027

24 February

2035

 

7 years

15 years

2.47% pa/

2.09%

3.00% pa/ 3.06%

 

SAR5,550m

13 May

Tranche 1-SAR3,805m

Tranche 1 – SAR1,950m

23 March 2025

23 March 2030

 

5 years

10 years

2.17% pa/ 1.76%

2.69% pa/ 2.38%

 

SAR5,755m

24 June

Tranche 1 – SAR2,494m

 

Tranche 2 – SAR3,670m

 

Tranche 3 – SAR2,331m

27 Jan 2027

 

23 March 2030

 

24 Feb 2035

 

7 years

 

 

10 years

 

 

15 years

2.47% pa/ 1.85%

 

2.69% pa/ 2.26%

 

3.00% pa/ 2.69%

 

 

 

SAR8,474m

27 July

Tranche 1– SAR452m

—————

Tranche 2 – SAR548m

23 March 2025

————

27 July 2027

 

5 Years

————

7 Years

 

2.17% pa/

1.43%

————–

1.73% pa/ 1.73%

SAR1,798m

24 August

Tranche 1 – SAR100m

—————-

Tranche 2 – SAR400m

 

26 July 2028

—————-

26 July 2035

 

 

8 Years

————-

15 Years

 

2.29% pa/ 2.13%

—————

3.10%pa/ 3.00%

SAR9,868m

 

Total First Eight Months 2020

 

SAR48,083.5m US$12,820.04m

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SAR59,115m

US$15,764m

Source: Compiled by Mushtak Parker from Data of the NDMC, Saudi Ministry of Finance   August 2020

Saudi Arabia is way ahead in tapping the domestic sovereign Sukuk market, given that it has a well-established issuance infrastructure complete with a government policy framework under its Fiscal Balance Programme and Financial Sector Development Programme, whose objectives inter alia is to add to a diversified public debt fund raising strategy and to the development of the Saudi Sukuk and Islamic Capital Market.

Another feature of the Saudi debt management strategy is the accessing of export credit agency (ECA) financing for contracts placed by the Kingdom’s agencies with foreign companies. The NDMC for instance in August successfully raised ECA financing of SAR1 billion from the German Export Credit Agency, Euler Hermes, in support of the procurement of 842 German-made buses for the King Abdulaziz Public Transport Project (Riyadh Buses) in Saudi Arabia. According to Fahad Al-Saif, President of the National Debt Management Center, this ECA-backed financing has been used for the first time by the Ministry in pursuant of such a procurement.

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