Saudi completes third monthly issue of domestic sukuk

Saudi Arabia raised SAR7bn ($1.87bn) through a sukuk, its third monthly sale of domestic Islamic bonds, as the government seeks to cover a large budget deficit caused by lower oil prices.

A finance ministry official estimated in May that sales of debt in the local market would cover 25 to 35 per cent of the country’s 2017 budget deficit, projected at SAR200bn.

Riyadh started issuing domestic conventional bonds in 2015 after its finances were hit by a slump in international oil prices, but it suspended them in September last year as the issuances strained liquidity in the banking system. Since then, liquidity has improved and money rates have come down.

The new sukuk, which received bids of SAR24bn, was split into three tranches of five, seven and 10 years.

The government issued SAR2.4bn of the five-year sukuk, SAR3.9bn of the seven-year tranche and SAR0.7bn of the 10-year paper, the ministry of finance said late on Monday.

In its first domestic sukuk sale in July, the government sold a total of SAR17bn, while last month it raised SAR13bn.

The latest sukuk paid yields of 2.75 per cent, 3.25 per cent and 3.45 per cent for the five, seven and 10-year bonds, respectively, sources familiar with the matter said on Tuesday.

In its previous sukuk sale last month, Saudi Arabia paid yields of 2.7 per cent, 3.2 per cent and 3.5 per cent to borrow, bankers said at that time.