Saudi NDMC Domestic Sovereign Sukuk Momentum Continues with Closure of SAR2.5bn (US$668.5m) Sukuk in June 2023, as Aggregate Issuance Tops SAR19.8bn (US$5.3bn) in the January-June period

The National Debt Management Centre (NDMC) of the Saudi Ministry of Finance (MoF) successfully closed its sixth consecutive monthly domestic sovereign Sukuk issuance on 13th June 2023 raising an aggregate SAR2,505.802 million (US$668.47 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 SAR7,437 million (US$1,983.96 million).

This follows a similar issuance in May 2023 when the NDMC raised an aggregate SAR4,339.37 million (US$1,157.10 million) 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). 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), a third two-tranche offering in March 2023 for an aggregate SAR3,374.2 million (US$899.39 million), and a fourth offering in April 2023 which raised an aggregate SAR2,471.002 million (US$658.93 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 June 2023 comprised:

  • A first tranche of SAR662.802 (US$176.82 million) with a 7-year tenor maturing on 23 March 2030 and priced at a yield of 4.36% per annum. Bids received totalled SAR3,537.802 million (US$943.78 million).
  • A second tranche of SAR1,843 million (US$491.66 million) with a 14-year tenor maturing on 24 February 2035 and priced at a yield of 4.55% per annum and a price of SAR86.06162. Bids received totalled SAR3,899.45 million (US$1,040.25 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 SAR19,813.397 million (US$5,281.61 million) in the January-June 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 Ministry of Finance Quarterly Budget Performance Report for Q1 2023 makes encouraging reading for the Saudi economic prospects. Total Revenues for Budget 2022 were projected at SAR1,045,090 million. Similarly, Total Expenditures projected for the same period was SAR955,000 million against actual expenditure of SAR1,164,309 million. This resulted in an actual budget surplus in 2022 of SAR103,855 million against a projected SAR90,090 million.

Revenues for Q1 2023 were projected at SAR1,130,000 million, expenditures at SAR1,114,000 million leaving a budget surplus of SAR16,000 million. The actual revenues realised in Q1 2023 was SAR280,944 million, the expenditure realised was SAR283,855 million, pushing the budget into a deficit of SAR2,910 million.

Public debt in Q1 2023 increased slightly from SAR990,084 million at the beginning of the period balance to SAR962,254 million at the end of the balance period when domestic comprised SAR618,504 million and external debt SAR343,750 million respectively.

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