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GACA to Sell Saudi's First Sovereign and Largest Sukuk Ever

By Adnan Halawi Team Leader – Fixed Income, Zawya
14 January 2012
Saudi's Civil Aviation Authority is about to sell the Kingdom's first sovereign sukuk ever. Guaranteed by the Ministry of Finance, the SAR 15 billion sukuk opens room for further diversity and growth in the Saudi sukuk market.

The General Authority for Civil Aviation of Saudi Arabia (GACA) is set to sell its first ever sukuk. The issuance of this shariah compliant bond marks several milestones; it would be the first ever sovereign sukuk issued out of the Kingdom, it will be of a benchmark size, it is expected to set the benchmark for more sovereign and corporate sukuk out of the Kingdom this year, it would place Saudi Arabia on the sukuk map like it was never before. Saudi government has been historically shy in terms of raising funds through the debt market when compared to its peer gulf nations.

The GACA sukuk which is guaranteed by the Ministry of Finance of Saudi Arabia will be sold in the domestic market and is restricted to sophisticated investors resident in the Kingdom of Saudi Arabia. HSBC is the sole lead manager and bookrunner for the transaction which was approved by the shariah board of HSBC Saudi Arabia. Proceeds will be used to finance the expansion of Jeddah Airport.

The Saudi Riyal denominated sukuk will be sold in denominations of SAR 1,000,000 and first settlement date is expected to be 18 January 2012. GACA could raise as much as SAR 15 billion (USD 4 billion) this week making the sukuk the biggest ever in the history of the region. The largest Saudi sukuk to date is SABIC 's second sukuk at SAR 8 billion issued in July 2007.

Data compiled by Zawya Sukuk Monitor shows USD 2.76 billion were sold in sukuk in the Kingdom in 2011 from 5 issuances, compared to USD3 billion in 2010 from 4 issuances. Throughout the years, Saudi Arabia managed to maintain a decent ranking in terms of countries witnessing sukuk issuance worldwide as a number of companies from various sectors sold benchmark sukuk including petrochemical's SABIC , real estate's Dar Al Arkan and construction's Saudi Binladin , Utilities' Saudi Electricity Company (SEC) and Financial Services' Saudi Hollandi Bank and Bank Al Jazeera among others. However, this is the first time we see a government guaranteed sukuk, proceeds of which go to the transport sector.

Among Saudi Arabia's firsts in the sukuk market were last year's first ever project sukuk in the Kingdom by SATORP and the success of the short-term sukuk model manifested in Saudi Bin ladin 9 months and 1 year sukuks. The latter are the shortest termed sukuk out of the GCC region to date. This year's GACA sukuk will certainly add to the diversity, richness and depth of the Saudi sukuk experience.

The Kingdom is by far the largest economy in the MENA region and benefiting from high oil returns it is expected to continue to witness economic growth and project finance that will nevertheless be reflected in an active sukuk issuance over the years to come beside the fact that Saudi Arabia is majority inhabited by Muslims and domestic issuance would be shariah compliant to attract Muslim wealth.

Zawya Sukuk Monitor pipeline suggests we might see issuance by Al Maraai - the first by a food company in the kingdom and possibly a fourth issuance by SEC in 2012.

© Zawya 2012