More Saudi firms set to issue Islamic bonds for capital boost

Arab National Bank unveils dollar Tier 2 capital sukuk; Banque Saudi commences offering

Islamic finance background with calculator and rosary on the table. Image used for illustrative purpose.

Islamic finance background with calculator and rosary on the table. Image used for illustrative purpose.

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Two more companies in Saudi Arabia have joined a host of Gulf corporates looking to issue Islamic bonds amid heightened liquidity needs.

On Monday, Arab National Bank announced its plans to issue US-dollar-denominated Tier 2 capital sukuk, while Banque Saudi Fransi said

Sukuk issuance has recently bounced back following a sharp slowdown during the global lockdown in March and April. Islamic bonds supply is expected to go up further this year, as firms seek to diversify capital sources and benefit from low funding costs.

During the second quarter of 2020, the Gulf Cooperation Council (GCC) region, along with other markets like Malaysia, Indonesia, Turkey and Pakistan, saw $12 billion worth of sukuk issuance with a maturity of more than 18 months, up by 42 percent from the preceding quarter, according to Fitch Ratings.

“We expect sukuk supply to rise further in 2020. Sovereign supply should continue as oil prices remain low and fiscal policy responses to the pandemic are implemented,” said Fitch in July.

According to global ratings agency Moody's, a recovery in market conditions and an increase in the borrowing requirements of the GCC governments will trigger a rise in nominal sukuk issuance this year. The recovery will support a full-year increase in sovereign sukuk issuance of around 40 per cent to $92 billion in 2020.

However, Moody’s still expects the proportion of sukuk in the funding mix of major issuers will decline this year, despite an increase in nominal issuance.

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In a bourse filing on Monday, Arab National Bank said it has appointed HSBC, J.P. Morgan Securities and Arab National Investment Company to do a series of investor calls related to the planned sukuk starting today, October 19.

“[The purpose of the issuance is] to support the bank’s capital base and fulfil the bank’s financial and strategic needs,” Arab National Bank said.

The bank has yet to determine the amount and terms of its bond offering.

In a separate statement, Banque Saudi Fransi confirmed its sukuk issuance commenced on October 19.

The firm is targeting “sophisticated” investors for its latest offering and has mandated Saudi Fransi Capital as sole bookrunner, lead arranger and lead manager for the private placement offer.

Last September, state-controlled Saudi Electricity Company (SEC) reported that its $1.3 billion green sukuk offering was four times oversubscribed.

(Reporting by Cleofe Maceda; editing by Seban Scaria)

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