SEC Returns to International Market with US$2bn Dual Tranche Sukuk Issuance Including a US$1.2bn Green Sukuk

Saudi Electricity Company (SEC), the Kingdom’s power generation utility, returned to the international financial market with a dual tranche transaction raising US$2 billion in the process. The transaction was successfully priced on 4th April 2023 and comprised a 10-year Senior Unsecured RegS US$1.2 billion Green Sukuk tranche, and a 30-year Senior Unsecured RegS US$800 million Sukuk tranche under its unlimited Sukuk Issuance Programme.

SEC, following the approval from its Board in February 2023 to tap the international financial market through a Sukuk issuance, mandated a consortium of banks in March 2023 – including HSBC Bank, Standard Chartered Bank, J.P. Morgan Securities, First Abu Dhabi Bank, MUFG Securities EMEA, Mizuho International, SMBC Nikko Capital Markets Limited, SNB Capital, Al Rajhi Capital, Saudi Fransi Capital, Abu Dhabi Islamic Bank, Bank of China, Abu Dhabi Commercial bank, Natixis, and Société Générale – to act as Joint Lead Managers and Bookrunners in relation to the Sukuk Offering, and to arrange a series of investor meetings and calls with accounts in the Kingdom and elsewhere in the GCC, UK, Europe, Asia and with Offshore US investors. HSBC, JPMorgan and Standard Chartered acted as joint global coordinators.

Following a virtual roadshow on 30 March 2023 that received an overwhelming participation of international investors in Asia, Europe, and the Middle East, the order book for the issuance opened and closed on 3 April 2023, attracting a total order book of US$15.4 billion, with an oversubscription rate of around 7.7 times for both tranches. The Sukuk issuance received strong demand from international investors with over 350 investors participating in the order book, including local and international financial institutions from more than 27 countries in Asia, Europe, and the Middle East.

SEC set the initial price guidance for the first tranche of the transaction at 165 basis points (bps) over U.S. Treasuries but this was subsequently tightened and the Green Sukuk was finally priced at a fixed profit rate of 4.632% per annum at a spread of 120 bps over 10years US Treasuries, while the 30-year Sukuk was priced at a fixed profit rate of 5.684% per annum at a spread of 205 basis points over 30 years US Treasuries.

According to Eng. Khaled Al-Gnoon, President and CEO of SEC, “the issuance supports the Company’s aspirations to finance its projects through innovative and sustainable financing solutions and confirms the growing confidence of international investors in Saudi companies and the strength of the national economy of the Kingdom and its prospects for prosperity and development under the vision of Saudi Arabia 2030. We are very pleased with the large demand from international investors and their confidence in the investment story of SEC, its creditworthiness, and the growing confidence of international investors in Saudi companies.”

This Sukuk offering, he added also aligned with the Company’s strategy to diversify its funding sources and expand its investor base in international markets. It also supported the Company’s aspirations to finance its projects through innovative and sustainable financing instruments.

The transaction attracted one of the highest order books for a regional corporate issuer over the last two years. Furthermore, the 30-year tranche is rare especially in the MENAT region achieving a maturity profile more akin to Malaysian government and quasi-sovereign issuers.

The proceeds from the issuance will be used to fund SEC general corporate purposes, including capital expenditures and/or, if so specified in the applicable issuance Final Terms, to fund a portfolio of Eligible Projects as set out in SEC’s Green Sukuk Framework, launched in 2020 in conjunction with the company’s sustainability strategy

Under the Framework, the amount equal to the net proceeds of Green Sukuk issued by SEC will be exclusively used to finance and/or refinance, in whole or in part, Eligible Green Projects (EGPs) in an EGP Portfolio, which may include projects funded no more than 12 months before the issuance of the Green Sukuk. The EGPs are aimed at helping contribute to Climate Change Mitigation.

The SEC Sukuk Certificates were admitted for listing and trading on the main board of the London Stock Exchange in early April 2023.

In early April 2023, SEC also announced the redemption of the full value of the second tranche of its International Sukuk issued on April 8, 2013, amounting to US$ 1 billion and listed on the London Stock Exchange. The Sukuk fell due on 8 April 2023.

SEC is a frequent user of Islamic finance facilities especially through raising funds through syndicated Murabaha financing and issuance of Sukuk. In February 2023, for instance, the company signed one of the largest riyal-denominated Syndicated Murabaha Facilities – a SAR10 billion (US$2.66 billion) transaction with a consortium of nine local banks.

A consortium of banks comprising Al Rajhi Banking and Investment Corporation, Banque Saudi Fransi, The Saudi British Bank, The Saudi National Bank, Riyad Bank, Bank Albilad, Bank Al Jazira, QNB Group Qatar National Bank – KSA, and The Saudi Investment Bank, participated in the Syndicated credit facility, which has a tenor of 7 years. The proceeds from the facility, stressed SEC in a filing with Tadawul (the Saudi Stock Exchange) will be used to finance general corporate purposes including capital expenditure.

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