The National Debt Management Centre (NDMC) of the Saudi Ministry of Finance (MoF) completed its domestic sovereign Sukuk issuance programme for 2020 in December.
In an unusual statement, the MoF confirmed that “with reference to the 2020 Local Sukuk Issuance Calendar, the NDMC announces the completion of receiving investors’ orders for the month of December 2020 under the Saudi Arabian Government SAR-denominated Sukuk Programme. The orders have reached SAR11,721 million. None of these orders were allocated due to the completion of the domestic borrowing plan for this year.”
Under its 2020 Domestic Sukuk Issuance Calendar, the NDMC had planned a two-tranche issuance – a 7-year and a 12-year offering – in December priced at a final fixed profit rate of 1.73% per annum and 2.89% per annum for the two tranches respectively. In November 2020, the NDMC issued a two-tranche Sukuk offering totalling SAR794.5 million (US$211.79 million). No other jurisdiction was committed to such a dedicated domestic Sukuk issuance regime in 2020.
The NDMC also confirmed that its total funding plan for the year 2020, amounting to SAR220 billion, was also successfully completed, “through a diversified funding sources which include domestic and international Sukuk and bond issuances as well as new financing channels, which is including Government Alternative Financing, Supply Chain Financing, in addition to unifying the domestic issuances programmes.”
The Saudi NDMC has a multi-pronged government-debt raising strategy, comprising raising more funds from the financial markets 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 and 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 Markets.
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. The continued traction and upward growth trajectory of Saudi domestic Sukuk issuance is driven by robust investor demand and the emergence of tenors of up to 40 years, which is underlined by the high investor oversubscription.
According to data compiled by Mushtak Parker for this newsletter from MoF statistics, the NDMC issued in 2020 domestic Sukuk totalling SAR50,393 million (US$13,433.13 million) with total bids amounting to SAR79,100 million (US$21,085.17 million).
These were issued under the Government’s Sukuk Issuance Programme. However, Saudi Arabia also occasionally issues Saudi-riyal denominated Sukuk on a standalone basis. In July, for instance, the NDMC raised SAR34,645 million (US$9,236.77 million) from a four-tranche stand-alone auction. This means that the total domestic sovereign Sukuk issued by the Saudi government in 2020 amounted to SAR85,038 million (US$22,638.35 million), which is almost a 50% increase on the previous year.
Under the anticipated 2021 sovereign domestic Sukuk issuance regime, there will no longer be any standalone ad hoc auctions. All the domestic sovereign Sukuk offerings will be unified under the Government Saudi-riyal denominated Sukuk Programme.
Saudi Arabia is ahead in tapping the domestic sovereign Sukuk market, because it has an 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.
Moody’s Investors Services in October assigned (P)A1/Aaa.sa rating to The Government Saudi-riyal denominated Sukuk Programme for 2021. “This rating,” said Saudi Minister of Finance, Mohammed Al-Jadaan, “reflects the strength, flexibility and capability of the Kingdom’s economy in facing global economic challenges and confirm great confidence in the Saudi economy.”
According to Fahad Al-Saif, CEO of the NDMC, the highest investment grade (Aaa.sa) rating for the government domestic Sukuk programme, “reflects the depth of the local debt market by providing a risk-free yield curve, and confirms the high creditworthiness of the Sovereign local issuances with the growing appetite of investors and private sector to the Saudi local issuances, especially in light of the financial and economic conditions that the world is currently witnessing due to the Coronavirus (Covid-19) pandemic.”
Al-Saif explained that the credit rating of local issuances is a guiding reference for potential issuers from the public and private sectors in Saudi Arabia and contributes to enhancing transparency within the local debt markets. The national scale rating also contributes to achieving the objectives of the Financial Sector Development Programme in deepening the market and developing local debt markets and is expected to further attract foreign investors in the local debt capital market.
There is growing domestic and international demand for fixed income assets in the kingdom that are Sharia’s compliant.
Saudi Sovereign Domestic Sukuk Issuance Jan-December 2020
Issuance Date 2020 | 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 |
16 September | Tranche 1 – SAR130m —————— Tranche 2 – SAR1,115m |
26 July 2024 ————— 26 July 2032
|
4 Years ————– 12 Years
| 1.64% pa/ 1.50% —————– 2.89% pa/ 2.75% |
SAR12,400m |
21 October | Tranche 1 – SAR235m —————— Tranche 2 – SAR35m |
27 July 2027 ————— 26 July 2032
|
7 Years ————– 12 Years
| 1.73% pa/ 1.87% ——————- 2.89% pa/ 2.25% |
SAR1,760m |
25 November | Tranche 1 – SAR199.79m —————— Tranche 2 – SAR594.71m |
27 July 2027 ————— 23 March 2030 |
7 Years ————– 10 Years
| 1.73% pa/ 1.85% ——————- 2.69% pa/ 2.40% |
SAR5,925m |
23 December | Tranche 1 – No Allocation —————— Tranche 2 – No Allocation |
27 July 2027 ————— 26 July 2032
|
7 Years ————– 12 Years
| 1.73% pa/ – ——————- 2.89% pa/ – |
SAR11,721m |
Total First Eleven Months 2020 |
SAR50,393m US$13,433.13m
|
|
|
|
SAR90,821m US$24,276.17m |
Source: Compiled by Mushtak Parker from Data of the NDMC, Saudi Ministry of Finance December 2020