Saudi Arabia sukuk market added to FTSE bond index

It is the first time that Saudi riyal-denominated fixed-income instruments will be included in a global index

The inclusion of Saudi Arabia in the FTSE Emerging Markets Government Bond Index marks the first time Saudi riyal-denominated fixed income instruments will be included in a global index. Photo: ReuterShow more

Saudi Arabia’s local currency bonds will be included in the FTSE Emerging Markets Government Bond Index from April 2022.

The global index and analytics provider will include 42 government sukuks with 306.1 billion riyals ($81.6bn) in par amount outstanding that will comprise 2.75 per cent of the index on a market value weighted basis, according to a statement from the FTSE on Thursday.

Par amount includes the money that bond issuers promise to repay bondholders at the maturity date of the bond.

The FTSE EMGBI measures the performance of local currency government bonds from more than 16 countries. It provides a benchmark for global portfolio managers to enable performance comparisons across sovereign debt markets, according to the statement.

“The Saudi capital market continues to grow at pace and the inclusion of Saudi Arabia in the FTSE Emerging Markets Government Bond Index highlights the importance of the enhancements made by the Saudi Exchange, which is a landmark achievement that will pave the way for its recognition globally,” Mohammed Al Rumaih, chief executive of Saudi Exchange, said.

Equities listed on the Saudi Stock Exchange (Tadawul) were included in the MSCI Emerging Markets Index in August 2019. Saudi Arabia accounts for 2.83 per cent of the index, which is tracked by global fund managers with trillions of dollars under management.

In March this year, the FTSE said Saudi Arabia would be included on its watch list for potential reclassification of its market accessibility level from 0 to 1 for possible inclusion in the FTSE EMGBI, according to the index provider.

Since launching a standalone government bond index that tracks local currency Saudi Arabian government bonds in September last year, the FTSE engaged with local regulators and index users in the kingdom to understand the market structure and investor experiences, the index provider said.

The inclusion of Saudi Arabia in the FTSE EMGBI marks the first time that Saudi riyal-denominated fixed-income instruments will be included in a global index and is a significant milestone in the development of the broader Saudi capital market, the statement said.

“Demand from local and international investors has been robust since the Saudi Exchange began listing and trading debt instruments issued by the government in April 2018,” the FTSE said.

“In August 2021, a nominal value of more than 3.3bn riyals of Saudi government debt was traded. More than 70 government debt instruments are listed on the exchange, while the total size of issuance for sukuk/bonds is more than 452bn riyals,” it added.

About $15 trillion worth of assets globally track FTSE Russell indexes.

India will remain on a watchlist for an upgrade to their market accessibility score and possible bond index inclusion, the FTSE said.

Kazakhstan local currency government bonds will be included in its Frontier Emerging Markets Government Bond Index next April, it added.