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Saudi Government Raises SAR35.65bn (US$9.5bn) via new Issuance and Refinancing in July 2020 Through Six Sukuk Istithmar Tranches Under Two Separate Issuance Programmes

Saudi Arabia’s reliance on domestic sovereign Sukuk issuance as part of its public debt strategy increased sharply with The National Debt Management Center (NDMC) of the Ministry of Finance (MoF) raising SAR1,000 million (US$266.61 million) through the issuance of a two-tranche Sukuk on 27 July 2020.

This is the seventh consecutive monthly Sukuk issuance in 2020 to date. In June, the NDMC raised SAR8,495 million (US$2,250 million) in a three-tranche issuance. The latest SAR1,000 million Sukuk in July comprised a two-tranche transaction consisting of:

i) A 5-year Tranche 1 totaling SAR452.2 million (US$120.51 million) maturing on 23 March 2025 and priced at a profit rate of 2.17% per annum and a yield of 1.43%. The auction attracted bids totaling SAR7,001 million (US$1,866.5 million).

ii) A 7-year Tranche 2 totaling SAR547.8 million (US$146.10 million) maturing on 27 July 2027 and priced at a final profit rate of 1.73% per annum and a final yield of 1.73%. The auction attracted bids totaling SAR547.8 million (US$146.10 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.

However, Saudi Arabia it was confirmed by the MoF in a statement on the same day of the SAR1bn Sukuk issuance also issues Saudi-riyal denominated Sukuk on a standalone basis. Indeed, in July, 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.

At the same time, the MoF at the request of selling Sukuk certificate holders, issued new follow-up Sukuk. “This exercise,” explained the MoF, “is one of the initiatives of the NDMC intended to unify the local issuances of the Government of Saudi Arabia under the framework of the Local Sukuk Issuance Programme of the Kingdom of Saudi Arabia.” The aim is to achieve complete unification of local Sukuk issuances.

This move 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.

As such, the new follow-up Sukuk issuance, according to the NDMC comprises four tranches with a total value of SAR34,645 million (US$9,236.77 million) – a first tranche of SAR8,970 million (SAR2,391.51 million) maturing in 2024; a second tranche of SAR6,025 million (SAR1,606.34 million) maturing in 2028; a third tranche of SAR6,500 million (SAR1,732.98 million) maturing in 2032; and a fourth tranche of SAR13,150 million (SAR3,505.94 million) maturing in 2035. HSBC Saudi Arabia and Samba Capital & Investment Management Company were mandated to act as Joint Placement Agents and Dealer Managers for the transaction.  

Saudi Government SAR Sukuk 2020-07-15      July 2020

VOLUME

USE OF PROCEEDS

ISSUE DATE

MATURITY DATE

COUPON RATE

STRUCTURE

TENOR

ADMINIS-TRATOR

SAR13.15bn

Budget Financing

26 July 2020

26 July 2035

3.10% pa

Sukuk Istithmar

15 Years

Riyad Capital

SAR6.5bn

Budget Financing

26 July 2020

26 July 2032

2.89% pa

Sukuk Istithmar

12 Years

Riyad Capital

SAR6.025bn

Budget Financing

26 July 2020

26 July 2028

2.29% pa

Sukuk Istithmar

8 Years

Riyad Capital

SAR8.97bn

Budget Financing

26 July 2020

26 July 2024

1.64% pa

Sukuk Istithmar

4 Years

Riyad Capital

TOTAL

SAR34,645m

(US$9,236.77m)

      

Source: Compiled by Mushtak Parker from Official NDMC, Saudi Ministry of Finance and Tadawul data

Trading Name: KSA Sukuk 2020-07-15     July 2020

Compiled from MoF data, the NDMC issued in the first seven months of 2020 consecutive monthly issuances under the Sukuk Issuance Programme, raising a total SR47,583.5 million (US$12,686.32 million), with an average tenor of 11.49 years; an average final profit rate of 2.30% per annum and an average final yield of 2.11% per annum, with total bids amounting to SR49,294 million (US$13,142.36 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 seven months of 2020 is over two thirds of the total raised in 2019. The NDMC issued twelve consecutive monthly domestic Sukuk from January to December 2019 with an aggregate annual volume of SR69,839 million (US$18,610 million). This was in turn a staggering SR23,054 million (US$6,150 million) year-on-year increase on 2018. The MoF also raised US$2,500 million through an international Sukuk in 2019, thus bringing the US dollar equivalent raised through Sukuk to US$21,110 million.

In addition, the Kingdom also issues conventional bonds as part of its diversified fund-raising strategy. On 16 April, the Kingdom issued a US$7,000 million conventional bond under its Global Medium-Term Note Programme – its seventh international bond to date and its second one this year following a US$5,000 million three-tranche multi-tenor offering in January.

If one combines the SAR1,000 million Sukuk under the Issuance Programme with the standalone SAR34,645 million Sukuk, then the total Saudi Government Sukuk issuances in July alone comes to SAR35,645 million (US$9,503.38 million), by far the largest monthly Sukuk issuance volume by any sovereign to date.

The Kingdom is feeling the health and economic impact of the Coronavirus (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.

Saudi Sovereign Domestic Regular Sukuk Issuance Jan-July 2020

Issuance Date

Volume

Maturity Date

Tenor

Profit Rate/ Final Yield

Fixed Rate

Total Bids

 

22 January

 

 

Tranche 1 – SR715m

Tranche 2 – SR6,005m

27 January 2027

23 March 2030

 

7 years

10 years

2.47% pa/ 2.47%

2.69% pa/ 2.82%

 

SR6,750m

19 February

Tranche 1 – SR508m

Tranche 2 – SR3,988m

27 January 2027

24 February

2035

 

7 years

15 years

2.47% pa/ 2.35

3.00% pa/ 3.00%

 

SR4,496m

25 March

Tranche 1 – SR169.5m

 

Tranche 2 – SR504m

Tranche 3 – SR14,894m

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%

 

 

 

SR16,424m

22 April

Tranche 1 – SR1,300m

Tranche 2 – SR4,250m

27 January 2027

24 February

2035

 

7 years

15 years

2.47% pa/

2.09%

3.00% pa/ 3.06%

 

SR5,550m

13 May

Tranche 1-SR3,805m

Tranche 1 – SR1,950m

23 March 2025

23 March 2030

 

5 years

10 years

2.17% pa/ 1.76%

2.69% pa/ 2.38%

 

SR5,755m

24 June

Tranche 1 – SR2,494m

 

Tranche 2 – SR3,670m

 

Tranche 3 – SR2,331m

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%

 

 

 

SR8,474m

27 July

Tranche 1– SR452m

—————

Tranche 2 – SR548m

23 March 2025

————

27 July 2027

 

5 Years

————

7 Years

 

2.17% pa/

1.43%

————–

1.73% pa/ 1.73%

SR1,798m

 

Total First Seven Months 2020

 

SR47,583.5m (US$12,686.3m)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SR49,294m

(US$13,142.36m)

Source: Compiled by Mushtak Parker from Data of the NDMC, Saudi Ministry of Finance   July 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.

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