Dubai:
Saudi Arabia, which has been facing budget deficits due to falling oil prices, received bids worth 51 billion riyals (Dh50 billion) for a 17 billion riyal sukuk, and analysts said the pricing was almost equal to the global peers.
The sukuk was over-subscribed 3 times, according to the ministry of finance. “This significant interest to invest in the Saudi Arabian Government riyal-denominated Sukuk is a testament to the strength and resilience of the Saudi economy as well as the Saudi capital markets,” a statement from the ministry of finance said.
The biggest tranche of the riyal denominated sukuk was the 5 year paper in which 12 billion was raised, while the remaining 7 year and 10 year tranche raised a total of 5 billion riyals.
“This is a first sukuk in a while so it is testing the onshore liquidity to some extent,” Abdul Kadir Hussain, head of fixed income asset management at Arqaam Capital told Gulf News.
Pricing:
The big change was that the pricing for the onshore paper was relatively close to offshore bonds, far cry from previous sukuks, when the pricing in the onshore market was tighter compared to global ones.
The pricing for the 5-year paper, which normally has large demand onshore, was at 2.95 per cent, even as the global sukuk was trading at 2.9 per cent. The pricing for the 10 year paper was tighter, and that was priced slightly higher
at 3.5 per cent.
“The pricing seems pretty much right on top of where the global sukuk trades,” said Hussain.
“During the days of $100 (Dh367) oil, the onshore market was much tighter then the offshore dollar market, but now they are pricing pretty much where the global bonds, this is just a reflection of the fact that conditions have changed,” said Hussain.
Outlook:
Sukuk issuance in the GCC was at $17 billion in the first half of the year, topping the $13.7 billion figure achieved in 2016.
“We had extremely strong first half, but going ahead we will see a little bit interest rate volatility based on what the Fed (Federal Reserve) will do on the potential balance sheet actions,” said Hussain.
“There are few issues in the pipeline. The first half was dominated by $9 billion issue from Saudi, that sort of size isn’t anywhere in the pipeline. I think the second half will be a lot quieter,” Hussain said.
Saudi Arabia’s first international bond issuance valued at $17.5 billion in October last year was the biggest recorded emerging market bond, far outpacing the previous record of Qatar’s $9 billion sovereign bonds issued in May 2016.
Saudi Arabia was the most active nation in the Middle East accounting for 21 per cent of activity by value, followed by Kuwait with 18 per cent.
Hussain expects another $3-5 billion of sukuk issuance for the rest of the year. Arqaam expects a pick-up in issuances from September, although interest rate volatility may remain.
