GACA sukuk to be model for Saudi bond issue

06 August 2015

Funds will be used to finance record budget deficit

The Saudi government’s plan to float sukuk this autumn to finance its record budget deficit could be modelled on the sukuk placed by the kingdom’s General Authority of Civil Aviation (Gaca) in October 2013, bankers in Riyadh said on 6 August.

The Gaca issue was the largest-ever government sukuk floated in Saudi Arabia. It had a fixed rate of return of 3.21 per cent.

Bankers also confirmed that the government of Saudi Arabia is preparing to float up to $27bn worth of bonds by the end of this year. They say that this could be done through the local stock market Tadawul which was opened to foreign international investors in June or in regional or international markets plans. It reported that it would involve issuing about SR20bn worth of bonds with a maturity of five, seven or 10 years every month.

“The discussions have been going on for a while,” says a Riyadh banker. “The only issue was whether the sukuk would be issued before or after Eid al-Fitr at the end of September.”

Saudi banks are among the world’s most profitable and heavily-capitalised in the Middle East. They had a total shareholders’ equity of $76.3bn at the end of last year and a return on equity of 14.55 per cent in 2014.

In July, Saudi Arabia issued SR15bn ($4bn) of government development bonds so far this year to domestic banks.

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