Early purchase of bonds allows Saudi Arabia to offer 4 issues at once … and returns up to 3.1%

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The Saudi government issued medium and long-term “quadruple” sukuk, whose returns ranged between 1.64 and 3.10 per cent, according to a document obtained by Al-Eqtisadiah.
The four new proposals came at once, and included maturities for the first time in the Kingdom’s history as a four-year and eight-year segment.
The second issuance process comes during July as an exceptional event due to the fact that it comes within the first early purchase of five-year bonds due for maturity this year, with a total value of 34.26 billion riyals ($ 9.14 billion), but the new alternative sukuk that came at the request of those campaigners The outstanding bonds came to 34.64 billion riyals.
The analysis of the reports unit in the “Al-Iqtisadiah” newspaper revealed that the investor’s requests centered, touching 38% on the 15-year sukuk with the highest yield.
The issuance of the 34.6 billion riyals, which was listed and traded on the local stock exchange in late July, is the largest in the history of fixed income markets in Saudi Arabia within six years.
Thus, the National Center for Debt Management achieves three goals from the methodology of early purchase of development bonds that are due for maturity this year, the first of which is according to the document seen by the “economic”, the unification of local issues, especially of bonds, within the sukuk program established in mid-2017.
Apart from the fact that the four segments (including new maturities for the first time, which is 4 and 8 years), will help extend the maturities of local debts, they lead to the development of local fixed income markets by expanding pricing options for companies and government agencies that offer their own issues and are guided by the pricing aspect of existing government issues .
The average maturity of the five-year bonds, which are due in 2020, is only two months. After the early purchase of these bonds and then their counterparty sukuk, the average maturity of the bonds reached eight years and five months.

Eurobond performance
On the other hand, the double slices of euro-denominated bonds of the kingdom’s government strengthened their gains by the end of the first half of this year after recovering from the bottom recorded by most of those securities in mid-March during the global turmoil that struck fixed income markets in emerging markets as a result of the Covid pandemic. – 19.
The “economic” analysis showed an increase in Saudi sovereign bonds, especially with long maturities, supported by the recovery of oil prices over the past period in light of improved demand, as well as due to measures to control financial performance announced by the Saudi government late in the first half of this year.
With sustainable negative interest rates on debt with long-term maturities, insurance companies, pension funds and commercial banks are rebalancing their portfolios of safe assets. The price distortion of “debt instrument prices and some of them entering the negative region” came after most central banks adopted the quantitative easing strategy.
The analysis showed that Saudi Arabia’s twentieth international bonds returned with capital gains of 6.4 percent, while the eight bonds achieved slight gains of 0.5 percent, and the two issues are currently trading above the face value.
Al-Eqtisadiah based its analysis on the qualitative data prepared by the fixed income department of I Bank. that. Dutchman as well as “Bloomberg”.
The data of the Economic Reports Unit showed that the euro currency bonds for Saudi Arabia due in 2027 are being traded at levels of 100.5 cents for the euro, at the end of the first half of 2020, after a full year has passed since its listing and trading on the London Stock Exchange.
The Saudi government’s 2039 entitlement went up by 1.8 cents to be traded at 106.4 cents for the euro, and the outstanding performance on the twenty-year bonds reflects the clear demand for these securities, after European continent’s investors are seeking positive return from periodic dividends.

Returns in SR
The return on debt instruments denominated in local currencies is declining around the world as central banks tend to reduce interest rates and apply unprecedented monetary incentives to reduce the economic consequences of the Corona virus.
The National Center for Debt Management appointed, on behalf of the Ministry of Finance, HSBC Saudi Arabia and Samba Capital for Asset Management and Investment Management jointly as coordinators and managers of the offering. The sukuk issues were divided into four segments with a total value of 34.645 billion riyals.
The new instruments were divided into 4 segments. The first tranche, with a value of 8.97 billion riyals, is due in 2024, at a rate of “return” for four-year bonds at 1.64 per cent, according to the price of the new issue at one thousand riyals.
As for the second tranche with a value of 6.02 billion riyals due in 2028, and the return of eight-year sukuk came to 2.29 per cent, according to the price of the new issue at one thousand riyals.
Whereas, the third tranche, worth 6.5 billion riyals, was due in 2032, and the return on 12-year sukuk was at 2.89 per cent, according to the price of the new issue at 1,000 riyals.
Whereas, the fourth tranche of 13.15 billion riyals came and is due in 2035, and the return of 15-year sukuk came to 3.10 per cent, according to the price of the new issue at one thousand riyals.
The activity of the real riyals denominated in Saudi Arabia is considered the bright spot in Saudi Arabia in the sky of international Islamic finance because of the large sizes of these proposals.
For example, according to a Standard & Poor’s report, Saudi Arabia ranked second in the performance of the global sukuk industry by the end of 2019, when the total issues of Saudi entities reached $ 29 billion.

The first offering of the euro
In July 2019, Saudi Arabia managed the first version of fixed income instruments denominated in the currency of the European continent, after the total offering amounted to three billion euros (equivalent to 12.70 billion riyals).
The offering was divided into two tranches, one billion euros (equivalent to 4.2 billion riyals) for eight-year maturities in 2027, and one billion euros (equivalent to 8.4 billion riyals) for 20-year bonds due in 2039.
It is known that the final return for the eight-year segment amounted to 0.75 percent, while paying annually, while the final return for the 20-year segment reached 2 percent.
The newspaper published an analysis on December 12, 2019 on the evaluation of the performance of Eurobonds for Middle East and North African countries in secondary markets for the current year, that Saudi Arabia was the closest Arab country to join the list of debt-issuing countries with negative returns, after it was 14 points away Basis on the zero interest that the negative interest will follow, after looking at it as one of the most important safe havens between the emerging market countries system.
In July, Saudi Arabia became the first Gulf country to issue bonds denominated in the currency of the European region and the sixth Arab country to use the euro currency with its debt program, after Egypt, Morocco, Algeria, Tunisia and Lebanon.

European investors
The geographical distribution of Saudi Arabia’s issuance of euro-denominated bonds in July revealed a remarkable presence for German, Italian and Swiss investors.
British investors also strengthened their traditional presence with previous Saudi issues when they clinched the first rank, which was usually reserved for US investors with dollar-denominated issuances, allocating “both tranches” to 28 percent. The Germans ranked second in terms of allocation 22.5 per cent.
It was also noted that there is a remarkable presence of Italian and Swiss portfolios with an average allocation rate of 17 per cent, while asset managers achieved the highest allocation of investor quality 57.5 per cent.
It became clear that Saudi Arabia had achieved its goal of finding new investors with new pockets, as the euro-denominated issue witnessed the entry of new liquidity seen for the first time with Saudi issues, which is liquidity coming from investors who focus on a specific class of assets with an investment rating.
As well as entering liquidity from the specialized funds that are invested only in the euro currency, and this last category cannot purchase Saudi sovereign bonds “denominated in dollars” due to the investment restrictions that govern the fund’s activities.
A hedge fund was also noticed when they bought 6.5 percent of the bonds, which means that these funds are betting on future oil prices.
The allocation of 10 percent to the European continent’s governments and central banks means that these entities have confidence in Saudi Arabia and its economic reform plans.

The lowest return
On July 2, during its special coverage of the issuance of Eurobonds, Al-Eqtisadia indicated that the party that manages “bond indices”, which are indicators of “JP Morgan” bonds for emerging markets, announced that the next Saudi issuance is eligible to join the euro bond index known as EURO EM – BIG.
At the time, I stated that this accession is expected to boost the demand for the Saudi issuance during secondary trading after the two tranches are listed.
She stated that the return for the eight-year segment is the lowest return recorded in the history of Saudi international issues denominated in hard currencies, and the assumption of the analysis is that using the issuance proceeds denominated in the euro and directing it towards purposes denominated in the issuance currency itself, without the need to replace the issuing currency with another currency.
Despite the varied sources that determine the actual number of countries that fall under the name of “emerging or emerging markets”, there is a consensus that the number of those countries ranges between 38 and 45 countries, including the Gulf countries, Russia, China, Korea and India.
On the other hand, during its description of the annual borrowing plan for the year 2020, the National Center for Debt Management stated that the debt denominated in the euro coin is less than 2% of the total debt portfolio at the end of 2019.
The Center examines opportunities for external issues in currencies other than the US dollar, according to the conditions of international markets and the factors of supply and demand. The Kingdom is distinguished by its major foreign exchange reserves and has a stable exchange rate policy.

Economic Reports Unit

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