NDMC Continues its Sovereign Domestic Sukuk Issuance Momentum in July 2024 with SAR3.21bn (US$855.39mn) Offering as Aggregate Volume of Issuances Reach SAR40.2bn (US$10.7bn) in 2024 to Date
The National Debt Management Centre (NDMC) of the Saudi Ministry of Finance (MoF) continued its sovereign Sukuk issuance momentum in the Saudi riyal-denominated domestic market with a five-tranche auction on 23 July 2024 – the seventh consecutive monthly auction to date in 2024 – which raised an aggregate SAR3,210.80mn (US$855.39mn). The tenors for the tranches ranged from five to fifteen years.
The NDMC successfully closed its sixth consecutive monthly domestic sovereign Sukuk issuance as per its annual issuance calendar on 27 June 2024 raising an aggregate SAR4,414.002m (US$1,176.79m) through three tranches. The NDMC started 2024 where it had left off in 2023 with a robust issuance of Riyal-denominated Sukuk in the domestic market with seven consecutive monthly multi-tranche transactions in the first seven months to date, which were all fully subscribed by selected local and foreign institutional investors, suggesting a robust sustained trajectory of the issuance and demand for Saudi government securities. It is consistent with the issuance trend of 2023.
The 23 July 2024 transaction comprised five tranches, details of which are set out in the table below.
The total bids for the five tranches matched those of the aggregate allocated amount. suggesting continued robust market demand from local and international institutional investors for Saudi local currency sovereign papers.
Last month, the Ministry of Finance and the NDMC extended the local primary dealer network for the issuances, to include Albilad Investment Company, AlJazira Capital Company, Al Rajhi Capital Company, Derayah Financial Company, and Saudi Fransi Capital appointing them as distribution primary dealers in the government’s local debt instruments.
The institutions will join the other five local institutions, namely, the Saudi National Bank, the Saudi Awwal Bank (SAB), AlJazira Bank, Alinma Bank, and AlRajhi Bank, as well as the five new international institutions, namely, BNP Paribas, Citigroup, Goldman Sachs, J.P. Morgan, and Standard Chartered Bank.
The NDMC Sukuk are all issued under the unlimited Saudi Arabian Government SAR-denominated Sukuk Programme, which focuses on fixed-rate instruments “to hedge against risks of potential interest rate fluctuations.”
These issuances confirm the NDMC’s earlier statement, that it will continue, in accordance with the approved Annual Borrowing Plan, to consider additional funding activities subject to market conditions and through available funding channels locally or internationally. This is to ensure the Kingdom’s continuous presence in debt markets and manage the debt repayments for the coming years while considering market movements and the government debt portfolio risk management.
Total Volume in First Seven Months 2024 Exceed SAR40bn
In 2023, the total volume of funds raised by the Saudi Ministry of Finance through all sovereign Sukuk issuances reached a staggering SAR104.02bn (US$27.73bn), of which SAR81.51bn came through domestic Sukuk issuances.
Thus far in the first seven months of 2024, the NDMC has already raised an aggregate SAR40,217.88mn (US$10,714.46mn) through seven local currency auctions – well on its way to potentially exceed its issuance volume in 2023, given the need to finance the volatility of the 2024 budget deficit and the huge infrastructure funding requirements especially associated with the giga NEOM projects and issuance under its newly-launched Green Financing Framework (GFF) unveiled by the Saudi Ministry of Finance in March 2024.
The Kingdom is by far the single most proactive sovereign domestic Sukuk issuer in the world. The NDMC’s 2024 Calendar of Local Sukuk Issuances, released in January, double downs this issuance momentum and confirms the intention of issuing domestic sovereign Sukuk consecutively for each month of the year from January to December – the only sovereign issuer to commit to such a calendar in advance.
This commitment is partly driven by the robust market demand for Saudi Arabian sovereign domestic Sukuk certificates from both local and international investors.
The NDMC’s role is to secure Saudi Arabia’s debt financing needs with the most competitive financing costs. Saudi Arabia is ahead in tapping the domestic sovereign Sukuk market because it also has an established issuance infrastructure complete with a government policy framework under its ‘Fiscal Balance Programme and Financial Sector Development Programme, whose objectives are to add to a diversified public debt fund raising strategy and to the development of the Saudi Sukuk and Islamic Capital Market.
The MoF intends to continue borrowing to finance the estimated 2024 budget deficit and refinance debt maturities due in FY 2024. Additionally, the NDMC “will remain vigilant in identifying and pursuing favourable market opportunities to implement additional financing activities to refinance debt maturities in the coming years. The Government remains committed to leveraging market opportunities to execute alternative government financing activities that promote economic growth, such as financing capital projects and infrastructure developments.”
The NDMC says it is committed to ensuring the Kingdom’s sustainable access to various debt markets to issue sovereign debt instruments at fair prices while maintaining prudent risk levels. To achieve this objective, it will continue to diversify financing channels throughout 2024.
This diversification will include expanding financing through export credit agencies (ECAs), financing infrastructure projects, and exploring tapping into new markets in new currencies.
These initiatives aim to expand the investor base and enhance the Kingdom’s access to global capital markets.
