Saudi Arabia picks hybrid structure for debut international dollar sukuk
05 Apr 2017 - 22:18
Dubai: Saudi Arabia has chosen a hybrid structure for its debut international sukuk, the prospectus for the offer showed, a format widely used in the Saudi local debt market, but not the most popular for sovereign issues.
The Islamic bond, expected to go up to $10bn, will be the country's second international debt sale after a $17.5bn conventional bond in October last year. That bond issue, the largest ever sold across emerging markets, was part of an effort to diversify Saudi Arabia's funding sources to plug a budget deficit caused by lower oil prices.
Saudi Arabia will start meeting fixed income investors for the sukuk, a dual-tranche Islamic bond with five- and 10-year maturities, early next week.
An amount equal to 51 percent of the bond proceeds will be used in a mudaraba agreement, a form of Islamic investment management partnership. The remaining 49 percent of the proceeds will be used under a murabaha facility by the trustee, a Cayman Islands-incorporated company called KSA Sukuk Limited, to purchase sharia-compliant commodities, the prospectus said.
Such a hybrid structure, which replicates the riyal-denominated sukuk offer launched by oil giant Saudi Aramco earlier this month, is common in the Saudi local currency debt market. A different lease-based (ijara) sukuk structure has been the most commonly used by countries raising money via international debt issuances.
A hybrid structure might be too complex for some international investors to the point of possibly testing their appetite for the deal, bankers told Reuters last week.