Saudi Arabia issues new sukuk worth $9.6bn after early purchase of outstanding debt

The new sukuk issuances will be done in four tranches

Riyadh skyline. Saudi Arabia, which generates the bulk of its revenue through the sale of hydrocarbons, is diversifying its funding base. AFP

Saudi Arabia has announced plans to issue new sukuk valued at around 35.9 billion Saudi riyals ($9.57 billion) after completing the early purchase of a portion of the kingdom's outstanding debt worth a total of 35.7 billion riyals.

The outstanding debt instruments were maturing in 2024, 2025 and 2026, with the move representing the “largest early purchase transaction” arranged by the National Debt Management Center, it said on Sunday.

The NDMC said the new sukuk issuances would be done in four tranches with the first, amounting to about 7.5 billion riyals, maturing in 2031. The second, valued at roughly 14.5 billion riyals, is set to mature in 2032, with the third tranche, amounting to 10.8 billion riyals, maturing in 2033, and the fourth, valued at approximately 3.2 billion riyals, maturing in 2038.

The initiative is a “continuation of the NDMC's efforts to strengthen the domestic market and to keep up with market developments which have been reflected positively on the growing trading volume in the secondary market”, it said.

The move also enables the NDMC to “exercise its role in managing the government debt obligations and its future maturities”.

“This will also align the NDMC’s efforts with other initiatives to enhance public finance in the medium and long term,” it added.

Saudi Arabia, which generates the bulk of its revenue through the sale of hydrocarbons, is diversifying its funding base in line with its Vision 2030 economic agenda and its Fiscal Balance and Financial Sector Development programmes.

The country's economy, the biggest in the Arab world, grew by 1.1 per cent in the second quarter, boosted by a sharp expansion in the country’s non-oil sector as the kingdom pushes to diversify its economy away from hydrocarbons.

The non-oil sector grew 5.5 per cent in the three-month period to the end of June, compared with the same period in 2022, according to a flash estimate by the General Authority for Statistics.

The kingdom’s economy is forecast to grow by 1.9 per cent this year, largely a reflection of oil production cuts and lower crude prices, according to the International Monetary Fund.

Growth in the kingdom is expected to pick up to 2.8 per cent in 2024, the Washington-based fund said in its latest World Economic Outlook update.

Globally, sukuk issuance volumes are expected to reach between $160 billion and $170 billion in 2023, according to S&P Global Ratings.

“A ramp-up of local currency issuance in Saudi Arabia could change this picture, however, particularly because we expect oil prices to be lower for the remainder of the year,” it said in a report last month.

HSBC Saudi Arabia, AlRajhi Capital, SNB Capital and AlJazira Capital have been appointed as joint lead managers for the latest transaction, NDMC said.