Saudi NDMC Domestic Sovereign Sukuk Issuance Momentum Continues with Closure of Three-tranche SAR7.41bn (US$1.97bn) Sukuk in April 2024, as Aggregate for First Four Months 2024 Reaches SAR29.40bn (US$7.83bn) Through Four Auctions
The National Debt Management Centre (NDMC) of the Saudi Ministry of Finance (MoF) successfully closed its fourth consecutive monthly domestic sovereign Sukuk issuance as per its annual issuance calendar on 24 April 2024 raising an aggregate SAR7,395.836 mn (US$1,971.91 mn) in the process through a three-tranche auction conducted by the Saudi Central Bank (SAMA). The total amount of bids received was SAR7,395.836 mn (US$1,971.91 mn).
The NDMC started 2024 where it had left off in 2023 with a robust issuance of Riyal-denominated Sukuk in the domestic market in three three-tranche transactions in January, February, and March this year. The NDMC raised an aggregate SAR21,965.75 mn (US$5,856.61 mn) in three auctions – one on 16 January 2024, one on 13 February 2024, and the third on 21 March 2024 which were all fully subscribed by selected local and foreign institutional investors, suggesting a robust sustained trajectory of the issuance and demand for Saudi government securities. It is consistent with the issuance trend of 2023.
The NDMC kicked off the year 2024 with its first auction on 16 January 2024 – a three-tranche offering of SAR8.825 bn (US$2,353.49 mn) completed on 24 January 2023. This was followed by a three-tranche issuance on 13 February 2024 which raised an aggregate SAR7.874 bn (US$2,099.05 mn), and a third auction on 21 March 2024 which raised an aggregate SAR5,266.75m (US$1,404.27m).
The auction on 24 April 2024 which raised an aggregate SAR7,395.836 mn (US$1,971.91 mn) comprised three tranches as follows:
- A first tranche of SAR2,235.00 mn (US$595.91 mn) with a 5-year tenor maturing on 23 January 2029 and priced at a yield of 5.34 % per annum and a price of SAR94.02803. Bids received totalled SAR2,235.00 mn (US$595.91 mn).
- A second tranche of SAR1,647.53 mn (US$439.27 mn) with a 7-year tenor maturing on 25 April 2031 and priced at a yield of 5.40% per annum and a price of SAR100.00. Bids received reached SAR1,647.53 mn (US$439.27 mn).
- A third tranche of SAR3,513.306 mn (US$936.73 mn) with a 12-year tenor maturing on 25 April 2036 and priced at a yield of 5.59% per annum and a price of SAR100.00. Bids received reached SAR3,513.306 mn (US$936.73 mn).
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.”
In a statement, the NDMC stressed that “this issuance confirms the NDMC’s statement in 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 considering market movements and the government debt portfolio risk management.”
Total Volume in 2024 Projected to Exceed 2023 Figure
In 2023, the total volume of funds raised by the Saudi Ministry of Finance through all sovereign Sukuk issuances reached a staggering SAR104,020.582 mn (US$27,729.11 mn), of which SAR81.51 bn came through domestic Sukuk issuances.
Thus far in First four months of 2024, the NDMC has already raised an aggregate SAR29,361.586 mn (US$7,828.52 mn) through four auctions – well on its way to potentially exceed its issuance volume in 2023, given the need to finance the 2024 budget deficit (albeit modest) and the huge infrastructure funding requirements especially associated with the mega NEOM projects.
In fact, in the Kingdom’s Green Financing Framework (GFF) unveiled by the Saudi Ministry of Finance in March 2024 it clearly stipulates that “the Kingdom will require large amounts of investment, stemming from both the public and private sectors to finance climate commitments.
The National Debt Management Centre (NDMC), in line with its mandate of securing financing for the government, is responsible for communicating on these investments to fixed income investors through this Green Financing Framework.”
Given the scale of Saudi Arabia’s Sustainability ambitions and the Kingdom’s pre-eminence in issuing domestic sovereign Sukuk, a major involvement of Green and ESG financing including debt instruments such as Sukuk, bonds, Murabaha syndications, equity investments are almost certain.
“Saudi Arabia has established its Green Financing Framework in accordance with the Green Bond Principles 2022, as published by ICMA. Under this Framework, the Kingdom will be able to issue Green Bonds/Sukuk,” says the GFF document.
The Kingdom is by far the single most proactive sovereign domestic Sukuk issuer in the world. The NDMC’s 2024 Calendar of Local Sukuk Issuances, released in January, double downs this issuance momentum and 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 from both local and international investors.
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 MoF intends to continue borrowing to finance the estimated 2024 budget deficit and refinance debt maturities due in FY 2024. Additionally, the NDMC “will remain vigilant in identifying and pursuing favourable market opportunities to implement additional financing activities to refinance debt maturities in the coming years. The Government remains committed to leveraging market opportunities to execute alternative government financing activities that promote economic growth, such as financing capital projects and infrastructure developments.”
The NDMC says it is committed to ensuring the Kingdom’s sustainable access to various debt markets to issue sovereign debt instruments at fair prices while maintaining prudent risk levels. To achieve this objective, it will continue to diversify financing channels throughout 2024. This diversification will include expanding financing through export credit agencies (ECA’s), financing infrastructure projects, and exploring tapping into new markets in new currencies. These initiatives aim to expand the investor base and enhance the Kingdom’s access to global capital markets.
The NDMC continues to work 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.