Saudi Arabia taps local sukuk market

24 July 2017

Government is looking to raise additional funds to narrow budget deficit

Saudi Arabia has made its first foray into the domestic currency shariah-compliant bond market as it looks to raise funds to bridge the fiscal deficit caused by dwindling oil revenues.

Riyadh has offered sukuk with five, seven and 10 years maturities to local financial institutions, under its riyal-denominated Islamic bond programme. The five-year sukuk were offered at yields in 2.90 to 3.00 per cent range, seven-year at 3.25-3.35 per cent, and 10-year at 3.55-3.65 per cent, according to news agency Reuters report, which added that the investors have been asked to submit bids on 24 July.

The government has not specified the amount of funds it intends to raise through the sale of sukuk. Bankers however, reports say the size of the first sukuk could be around SR10bn ($2.7bn), and that issues might then be sold on monthly basis. Officials in Riyadh have estimated that the government could raise about 25 to 35 per cent of the fiscal deficit this year, which is projected at almost SR200bn.

Saudi Arabia, the region’s biggest economy and the top oil exporter in the world, still heavily rely on the sale of hydrocarbons for revenues. The oil price slump from mid-2014 peak of $115 a-barrel has forced the kingdom to raise funds through debt market to bridge the budget gap. It secured $10bn through a conventional loan and more than $17bn when it sold the record-breaking debt bond in October 2016. Riyadh also raised $9bn through a dollar-denominated dual sukuk deal earlier this year.

For the local currency sukuk programme, structured with the help of Alinma Bank, the government has selected 13 domestic banks, the debt management office at the kingdom’s finance ministry said in a statement last week.

Beside Alinma, lenders qualified to participate in the government debt programme include Alawwal Bank, Al-Rajhi Bank, Arab National Bank, Bank Albilad, Bank Aljazira, Banque Saudi Fransi, Gulf International Bank, Riyad Bank, Samba Financial Group, Saudi Investment Bank, National Commercial Bank and Saudi British Bank.


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