Saudi Arabia’s Riyad Bank Successfully Prices GCC’s Largest Tier II Offering with US$1.5bn Sukuk Driven by Strong Investor Demand

Saudi Arabia’s Riyad Bank successfully issued its latest offering – a Tier II US$1.5 billion Sukuk on 18 February 2020. The Sukuk was issued under Riyad Bank’s US$3 billion Trust Certificates Programme.

The Sukuk, which was issued by Riyad Sukuk Limited (RSL) on behalf of the Obligor, Riyad Bank, has a 10-year tenure, maturing on 25 February 2030, but is callable after five years from 25 February 2025.

RSL, the issuer and trustee, is a special purpose vehicle (SPV), incorporated in the Cayman Islands as a trust for charitable purposes with shares being held by Maples FS Limited as share trustee. RSL was established solely to issue trust certificates (Sukuk) under the Programme and entering into the transactions contemplated by the transaction documents.

The Sukuk certificates were priced at a fixed rate of 3.174% per annum payable semi-annually in arrears on each periodic distribution date from and including the issue date.  The pricing achieved, according to Riyad Bank, is one of the lowest compared to Tier II bonds globally.  In addition, Riyad Bank is the only Saudi bank to have an outstanding US dollar-denominated Tier II bonds/Sukuk in the market which would pave the way for other Saudi issuers and set a benchmark to issue Tier II papers for the Gulf Cooperation Council (GCC) region.

Following approval from its Board and the Capital Market Authority of Saudi Arabia, Riyad Bank mandated in early February 2020 J.P Morgan, Riyad Capital, Standard Chartered Bank, First Abu Dhabi Bank and HSBC as Joint Lead Managers “for the potential offer International Tier 2 Sukuk denominated in U.S dollars.”

Riyad Bank in a disclosure to the Saudi Stock Exchange (Tadawul) in early February 2020 also confirmed that it established a US$3 billion Trust Certificate Issuance Programme, under which the proposed International Tier 2 Sukuk would be issued. The purpose of the Sukuk issuance is to diversify Riyad Bank’s sources of finance and its maturity, and strengthen the capital base of the Bank, thus supporting the expansion of its credit business and supporting its banking activities.

According to Riyad Bank, the transaction is the first ever Basel III compliant US dollar Tier II Sukuk, and also the largest corporate Sukuk in the region. The investor demand for the Sukuk certificates was one of the highest seen for GCC issuers, with the issuance oversubscribed 5.5 times and the order book reaching US$8.3 billion.

International rating agency Fitch Ratings assigned a long-term rating of ‘BBB-’ to the US$1.5 billion subordinated Tier II Sukuk issue, two notches below Riyad Bank’s ‘BBB+’ Long-Term IDR with a Stable Outlook.

 

The Sukuk, said Fitch, constitute direct, unsecured, and subordinated obligations of Riyad Bank and rank pari passu with all other tier 2 certificates issued under the Programme.

“The certificate holders’ right to receive payment of the principal amount of the Tier II certificates will, and the periodic distribution amounts in respect of Tier II certificates may, be written-down (in whole or in part) upon the occurrence of a non-viability event,” said Fitch in its rating rationale. 

The Certificates were listed on the International Securities Market of the London Stock Exchange on 19 February 2020. The Certificates may be sold in reliance on Regulation S under the US Securities Act of 1933, as amended.

The bell ringing ceremony marking the listing on the London Stock Exchange was done by Tareq Al Sadhan, CEO of Riyad Bank, in the presence of Conor Burns, the UK international trade minister, and Prince Khalid bin Bandar bin Sultan, Saudi ambassador to the UK.

“We are very proud with the outcome of this transaction, which reflects the confidence international investors placed on Riyad Bank, and more importantly on the Kingdom of Saudi Arabia. Our strategy is fully aligned with Saudi Vision 2030 and we continue to successfully deliver on our strategic objectives,” said Al Sadhan.

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