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 $500mn.
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 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% to its lowest level since early November on an intraday basis, and was trading down 0.7% at 1.58pm in Riyadh.
Saudi Arabia is forecast to post a budget deficit of 198bn riyals ($53bn) this year, equal to about 7.7% of economic output. The kingdom raised $17.5bn 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% on Wednesday. The world’s biggest oil exporter plans to raise between $10bn and $15bn from international bond markets in 2017 and sell about 70bn riyals locally, said Mohammad al-Tuwaijri, secretary-general of the Finance Committee at the Royal Court in December.
Saudi Arabia had a public debt of 12.3% of gross domestic product in 2016 and this has been capped at 30% by 2020. The government raised 97bn riyals by placing bonds with local institutions last year.
Six sukuk issues in Saudi Arabia raised $1.8bn in 2016, five of which were denominated in Saudi riyals, according to data compiled by Bloomberg. The UAE, the second-biggest Arab economy, in comparison raised $7.8bn from 14 sukuk issues last year, the data shows.
A Saudi investor monitors share prices at the Saudi Stock Exchange, or Tadawul, in the capital Riyadh (file). Most Saudi Arabian bank stocks fell on Wednesday amid concerns that a domestic sukuk sale could drain liquidity from the country’s banking system.
