Saudi Arabia raises $1.9bn from domestic sukuk sales

Bloomberg / Reuters

Saudi Arabia raised 7 billion riyals ($1.9 billion) from domestic sukuk sales as the kingdom seeks to bolster its finances amid an economic overhaul and lower oil prices.
The government received more than 24 billion riyals in bids for its third riyal-denominated Islamic bond sale, according to a statement on the Ministry of Finance’s website. It raised 2.4 billion riyals from a five-year tranche priced at 2.75 percent, 3.9 billion riyals from seven-year notes at 3.25 percent and 700 million riyals through a 10-year tranche at 3.45 percent, people familiar with the matter said, asking not to be identified because the information is private.
The kingdom has raised 37 billion riyals in the past three months from domestic debt sales after tapping the international Islamic bond markets for $9 billion.
The fund-raising could help the government narrow an expected budget deficit of 198 billion riyals this year, or 7.7 percent of economic output.
Saudi Arabia is implementing a transformation plan aimed at weaning the economy off oil. As part of these efforts, the government plans to create the world’s largest sovereign fund and sell hundreds of state assets, including Saudi Arabian Oil Co. as well as stakes in the stock exchange, football clubs and flour mills. The country is also considering a plan to phase out subsidies for gasoline and jet fuel in November at the latest, a person familiar with the matter said this week.
The Public Investment Fund, the kingdom’s wealth fund, will next month host chief executive officers of companies such as BlackRock Inc, HSBC Holdings Plc and SoftBank Group Corp. at an event to showcase its “redefined investment mandate and strategy.”
A finance ministry official estimated in May that sales of debt in the local market would cover 25 to 35 percent of the country’s 2017 budget deficit, projected at 200 billion riyals.
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.
In its first domestic sukuk sale in July, the government sold a total of 17 billion riyals, while last month it raised 13 billion riyals.
In its previous sukuk sale last month, Saudi Arabia paid yields of 2.7 percent, 3.2 percent and 3.5 percent to borrow, bankers said at that time.