Promising signs for Saudi sukuk - Arab News

Sukuk markets in Saudi Arabia have seen steady, albeit unspectacular growth, as leading blue chip names — notably Saudi Electricity Co. and SABIC (Saudi Basic Industries Corp.) —have repeatedly tapped the market and a handful of others have followed suit. The Saudi Stock Exchange Tadawul now has secondary trading platform for sukuk with a total eight of listed issuances at present.

Recent months have seen encouraging innovation in the market due to new tenors and innovative structures, such as the first-ever true project sukuk by Saudi Aramco Total Refining and Petrochemical Company (SATORP). But in truth the Saudi and GCC sukuk markets have not yet matched the performance of Malaysia which routinely accounts for up to two-thirds of global issuance while having only one-fifth of the GCC’s GDP (gross domestic product). A large part of the difference seems to be linked to the important role of government-linked institutions as sukuk issuers in Malaysia.

Signs are now emerging of potentially transformative changes in the GCC sukuk markets. Yields have dropped and overall issuance levels picked up after greater consensus about acceptable structures and procedures for default-type situations. Beyond Bahrain, regional sovereigns, such as Qatar, Dubai, and Ras Al-Khaimah have issued sukuk, along with government-owned corporations and multilateral organizations such as the Islamic Development Bank. Last week saw indications that Saudi Arabia might be about to enter the sovereign sukuk market, although the actual issuance may be done through a fund or a government agency, possibly as soon as Q1 of 2012. The large budget surpluses create little foreseeable need for external financing and the Kingdom has until recently prioritized efforts to pay down its public debt to less than 10 percent of GDP, a goal that has now been accomplished.

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