Khaleej Times

Saudi Arabia plans domestic sukuk to boost market

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dubai — Saudi Arabia is planning a sale of Islamic bonds in riyals to local institutio­ns this year to help boost the country’s sukuk market, three people with knowledge of the matter said.

The world’s biggest oil exporter is working on the benchmark-sized issue alongside a plan to sell dollar Islamic bonds in the internatio­nal market, the people said, asking not to be identified because the informatio­n isn’t public. The country hasn’t yet decided which offering to conduct first, they said. A benchmark-sized issue usually raises more than $500 million.

The government joins oil giant Saudi Arabian Oil Co in planning the sale of Islamic bonds in the local market to raise funds. Saudi Aramco, as that company is known, picked four banks including the local unit of HSBC Holdings Plc to advise on its first sale of the securities, likely before the end of June, two people with knowledge of the matter said last month.

A sukuk issuance is one of a number of options the country is considerin­g as part deficit financing and part developing a domestic debt market, the Finance Ministry said in an emailed response to questions.

Most Saudi Arabian bank stocks fell on Wednesday amid concerns that a domestic sukuk sale could drain liquidity from the country’s banking system. The Tadawul Banks Index fell as much as 0.8 per cent to its lowest level since early November on an intraday basis, and was trading down 0.7 per cent at 1:58pm in Riyadh. Saudi Arabia is forecast to post a budget deficit of 198 billion riyals ($53 billion) this year, equal to about 7.7 per cent of economic output.

The kingdom raised $17.5 billion from a debut sale of internatio­nal bonds in October, a record for an emerging market nation, and also completed a syndicated loan in dollars as well as several bond sales to domestic institutio­ns.

Last year’s bond sale helped ease liquidity conditions in the kingdom where the slowest bank deposit growth since at least 1993 made the three-month interbank interest rate rise to its highest level for seven years in 2016. The rate has fallen 64 basis points since the sale to 1.75 per cent on Wednesday.

The world’s biggest oil exporter plans to raise between $10 billion and $15 billion from internatio­nal bond markets in 2017 and sell about 70 billion riyals locally, said Mohammad Al Tuwaijri, secretaryg­eneral of the Finance Committee at the Royal Court in December.

Saudi Arabia had a public debt of 12.3 per cent of gross domestic product in 2016 and this has been capped at 30 per cent by 2020. The government raised 97 billion riyals by placing bonds with local institutio­ns last year. — Bloomberg

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