The National Debt Management Centre (NDMC) of the Saudi Ministry of Finance (MoF) successfully closed its fifth consecutive monthly domestic sovereign Sukuk issuance on 23rd May 2023 raising an aggregate SAR4,339.37 million (US$1,157.10 million) in the process through a two-tranche auction conducted by the Saudi Central Bank (SAMA). The total amount of bids received for the two tranches was SAR4,339.37 million (US$1,157.10 million).
This follows a similar issuance in April 2023 which raised an aggregate SAR2,471.002 million (US$658.93 million). The NDMC kicked off with its first issuance of the year with a two-tranche auction completed on 24 January 2023 for an aggregate SAR3,465.561 million (US$923.25 million), followed by a second two-tranche issuance on 15 February 2023 for an aggregate SAR3,657.462 million (US$974.53 million), and a third two-tranche offering in March 2023 for an aggregate SAR3,374.2 million (US$899.39 million).
The NDMC Sukuk are all issued under the unlimited Saudi Arabian Government SAR-denominated Sukuk Programme, which focuses on fixed-rate instruments “to hedge against risks of potential interest rate fluctuations.”
The two tranches auctioned in May 2023 comprised:
- A first tranche of SAR1,305.40 (US$348.09 million) with a 10-year tenor maturing on 21 January 2033 and priced at a yield of 4.37% per annum and a price of SAR 85.78500. Bids received totalled SAR1,305.40 (US$348.09 million).
- A second tranche of SAR3,033.97 million (US$809.01 million) with a 14-year tenor maturing on 17 March 2037 and priced at a yield of 4.65% per annum and a price of SAR86.85590. Bids received totalled SAR3,033.97 million (US$809.01) million.
In 2022 the Saudi Ministry of Finance issued an aggregate SAR86,491.29 million (US$23,042.00 million) of Saudi-riyal denominated Sukuk for the January-December period through consecutive monthly issuances. In the same period in 2021, according to data compiled by Mushtak Parker from official MoF reports, the NDMC issued an aggregate SAR65,741.315 million (US$17,491.51 million).
Thus far in 2023, the NDMC has raised a total of SAR17,307.595 million (US$4,615.11 million) in the January-May period.
In a statement, the NDMC stressed that “this issuance confirms the NDMC’s statement on the mid of February 2022, that it will continue, in accordance with the approved Annual Borrowing Plan, to consider additional funding activities subject to market conditions and through available funding channels locally or internationally. This is to ensure the Kingdom’s continuous presence in debt markets and manage the debt repayments for the coming years while taking into account market movements and the government debt portfolio risk management.”
This latest transaction also follows the one-off Saudi sovereign Sukuk issuance in the international Sukuk market with a two-tranche Sukuk issuance in mid-May 2023, despite a more-or-less balanced budget, rising oil revenues and pre-funding activities that have been executed to manage refinancing risk of previous bond and Sukuk issuances amid a higher interest rate environment.
The NDMC announced on 14th May 2023 that it had issued a dual tranche Sukuk totalling US$6 billion in response to “receiving investors’ requests for the issuance of international trust certificates (Sukuk).”
The Kingdom is by far the single most proactive sovereign domestic Sukuk issuer in the world. The NDMC’s 2023 Calendar of Local Sukuk Issuances, released in January, confirms the intention of issuing domestic sovereign Sukuk consecutively for each month of the year from January to December – the only sovereign issuer to commit to such a calendar in advance.
This commitment is partly driven by the robust market demand for Saudi Arabian sovereign domestic Sukuk certificates. The NDMC’s role is to secure Saudi Arabia’s debt financing needs with the most competitive financing costs. Saudi Arabia is ahead in tapping the domestic sovereign Sukuk market because it also has an established issuance infrastructure complete with a government policy framework under its ‘Fiscal Balance Programme and Financial Sector Development Programme’, whose objectives are to add to a diversified public debt fund raising strategy and to the development of the Saudi Sukuk and Islamic Capital Market.
The NDMC is currently working on attracting new capital, and more international financial institutions in addition to selected local banks to take part in the Primary Dealers Program, to capitalize on the debt instruments arranged by the NDMC. Already, BNP Paribas, Citigroup, Goldman Sachs, J.P. Morgan, and Standard Chartered Bank have signed up as new primary dealers in the government’s local debt instruments. They join five local institutions, namely Saudi National Bank, Saudi British Bank (SABB), Al Jazira Bank, Alinma Bank, and Al Rajhi Bank, already in the NDMC’s Primary Dealers Programme.
The Saudi Government will be buoyed by the concluding statement of the 2023 Article IV Consultation with Saudi Arabia published by IMF staff on 7th June 2023. “The Saudi economy is booming, spurred by high oil prices, a strong pick up in private investment and reform implementation. The current account surplus has reached a decade-high surplus and inflation is contained. Uncertainty in the global economy—both impacting financial conditions and oil prices—requires continued efforts to further build buffers and diversify the economy,” said the IMF.
Going forward, the Fund staff caution on continued fiscal reforms, coupled with careful calibration of investment programmes, which “will help strengthen fiscal and external sustainability while implementation of the impressive structural reform agenda will help generate a strong, inclusive and more sustainable growth.”
Saudi Arabia was the fastest growing G20 economy in 2022. Overall growth reached 8.7%, reflecting both strong oil production and a 4.8% non-oil GDP growth driven by robust private consumption and non-oil private investment, including giga projects. The Saudi unemployment rate is at a historical low. Amid an increase in labour force participation, total unemployment dropped to 4.8% by end-2022—from 9% during Covid.
Other economic positives in 2023, according to the IMF, include i) Non-oil growth momentum is expected to remain strong; ii) Headline inflation will be contained in 2023 at 2.8%; iii) The Saudi riyal exchange rate peg to the US dollar remains appropriate given the current economic structure; iv)The banking system remains on a strong footing; v) The implementation of Vision 2030 reform agenda is continuing unimpeded towards a productive and green economy; vi) Implementing the Green Initiative is essential to meet Saudi Arabia’s net emissions target.