HSBC announced that it has completed the first ever government guaranteed Sukuk in Saudi Arabia for Saudi Arabia's General Authority of Civil Aviation ("GACA"). Raising SAR 15 billion (US$4 billion) for GACA, the Sukuk achieved a profit rate of 2.5%.

HSBC acted in sole capacity as Lead Manager and Bookrunner, Sukuk Arranger, Shari'ah Coordinator, Sukuk Holders' Agent, and Payment Administrator.

Walid Khoury, CEO of HSBC Saudi Arabia Limited said: "This is a great achievement for GACA, and stands as a testament to the confidence local investors have in this high quality name. Not only did it raise US$4bn, but it has done so at a profit rate of just 2.5%. This is only around half a percent more than US treasury notes and less than half the rate some European countries have to pay for their funds."

"As the first Sukuk from a government guaranteed entity this deal also has significance for the development of the regional Sukuk market. Prior to this issuance, issuers priced their new securities against US treasury bonds- adding a premium for the perceived additional risk. With no 'risk free' local benchmark, it wasn't possible to use a local reference point, so instead issuers used this theoretical point. In effect this issuance therefore establishes a local pricing point for future Sukuk."

"This deal was 3.5 times over subscribed with strong demand from a wide range of banks, sovereign funds, pension agencies, insurance companies, corporates. This spread of investors means that any subsequent issuance won't be over reliant on any one sector and can tap into a ready investor base. This sheer scale of the demand and the eventual pricing demonstrates the confidence buyers have in both the region and its government."

Fahad Al Saif, Head of Debt Capital Markets, HSBC Saudi Arabia, added:

"Many Sukuk of this size are issued in multiple tranches, with different prices and dates of maturity. However, this Sukuk has been launched as one single issuance, and in doing so has become the largest single-tranche Sukuk ever issued globally. Not only this, but the fact that the government of Saudi Arabia has guaranteed this deal means that it has also become the largest sovereign guaranteed issuance in the Emerging Markets for the last 10 years."

Additionally, this issuance is also the first ever Sukuk approved by the Saudi Arabian Monetary Agency (SAMA) to be eligible for repo arrangements and has also been assigned zero% risk weighting for capital adequacy calculation purpose. This means that investors can hold this Sukuk as an investment, but also use it as an effective liquidity tool by using it to guarantee cash from the central bank.

HSBC in Saudi Arabia has lead deals for the petro-chemical sector, energy, contracting, real estate, and now - with this deal -aviation/infrastructure. HSBC ended the 2011 leading the Bloomberg league table for Emerging Markets Bonds, GCC Bonds & Sukuk, MENA Region Bonds and International Sukuk. Looking at 2012, HSBC has started the year at the top of the Bloomberg league tables, with a continued dominant market share.

© Press Release 2012