Saudi sukuk issues remain stagnant

Corporate sukuk (Islamic bonds) issuance in Saudi Arabia has remained stagnant despite a surge in such tools worldwide, the Gulf Kingdom’s largest bank said on Tuesday.

From around $33.5 billion in 2009, global sukuk volume jumped to nearly $50.6 billion in 2010, National Commercial Bank (NCB) said in a study sent to Emirates 24/7.

The number of corporate sukuk worldwide grew by a substantial 138 per cent Y/Y in 2010, from 82 to 195 issuances, a turnaround from the dominance of sovereign sukuk in 2009 at 131 issuances, reflecting an improvement in risk appetite, the study said.

It showed Saudi Arabia maintained its third rank in 2010 after Malaysia and Indonesia, with the total value of sukuk registering $three billion, compared with around $3.1 billion in 2009.

Four issuances were involved, three corporate, and one quasi-sovereign, with Saudi Electricity Company (SEC), Islamic Development Bank (IDB), Dar Al-Arkan (DAAR) and Saudi Bin Ladin (SBG) raising SR7 billion, $500 million, $450 million, and SR186.7 million, respectively, the report showed.

The margin on SEC’s SAR denominated issuance was 95 bps over SAIBOR much lower than a similar issuance in July 2009 that was priced at 160 bps over SAIBOR, underscoring the ease in financing conditions, it said.

Additionally, the interest on dollar denominated issuances ranged between IDB’s 1.7 per cent and DAAR’s excessive 10.75 per cent.

“The fact that the value and number of issuances remained around the same levels of 2009, tells a story of stagnation that mimics that of private sector credit which barely grew at 2.7 per cent Y/Y in November 2010,” NCB said.

“Even the issuers had mostly not changed, with SBG being the only exception. Up until small- and medium-sized companies start to tap for sukuk financing, the main players and level of issuances are not expected to drastically change.”

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