Saudi Arabia to build riyal Sukuk benchmark with ‘unlimited’ local program

SAUDI ARABIA: The Kingdom of Saudi Arabia is all set to start issuing regular riyal-denominated Islamic papers, a move likely to boost the local Sukuk market and fortify its position in the global Sukuk landscape among heavyweights Indonesia and Malaysia while simultaneously providing the Islamic financial community with much-needed avenues to manage excess Shariah liquidity.

Joining a small group of sovereigns, comprising the likes of Malaysia, Indonesia, Brunei, Bangladesh, Bahrain, Gambia and Mauritania to regularly sell local currency Sukuk, the Saudi finance ministry did not set a ceiling for its domestic program; it did, however, say that the size, the expected yield and the types of eligible investors for each Shariah securities auction will be settled upon on a case-by-case basis.

The first offering was made yesterday, according to Reuters. Accepting bids until 2 pm local time today, three tranches were launched: five-year, seven-year and 10-year facilities at yields of between 2.9-3%, 3.25-3.35% and 3.55-3.65% respectively. These papers would help establish a yield curve across different maturities. Thirteen banks were earlier identified as qualified to participate in the Sukuk program including Alinma Bank which assisted the ministry with the Sukuk structuring.

The oil-rich nation has been compelled to look to the debt capital market to plug its widening budget deficit caused by the low price of the barrel. It last tapped the Sukuk market in April with its mammoth US$9 billion offering, two years after its first bond issuance in eight years.

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