BMG’s vision for evolving the Kingdom’s sukuk market

A sukuk is a Shariah-compliant fixed-income security through which the issuer seeks asset-based financing. It gives investors an undivided share in a pool of assets that form the core of the sukuk issuance. These financial instruments are thoughtfully designed to ensure that how funds are used and repaid adheres to Shariah principles. Unlike conventional bonds, which are based on interest-bearing debt, sukuks present a distinctive and attractive choice in the realm of Islamic finance.

Last week, Saudi Aramco, one of the world’s leading integrated energy and chemicals companies, announced the completion of a $3 billion international sukuk issuance, comprised of two US dollar-denominated tranches.

The tranches are split between $1.5 billion maturing in 2029 and $1.5 billion maturing in 2034, with annual coupons of 4.25 percent and 4.75 percent, respectively. The sukuk will be listed on the London Stock Exchange.

This latest issuance of sukuk shows the new trend that leading listed companies, such as Aramco, Al-Rajhi Bank, and others, are taking to finance their growth. As for Aramco, it continued to receive impressive demand, as demonstrated by the oversubscribed order book.

On the listed financial sector front, Al-Rajhi Bank, one of the leading banks in Saudi Arabia, offered the first sukuk denominated in US dollars, amounting to $1 billion, with a profit rate of 6.375 percent annually, which was oversubscribed three and a half times. This level of oversubscription shows the demand from international and regional investors for highly rated listed companies in the Saudi market.

Earlier this year, as part of its capital-raising strategy, the Public Investment Fund issued a $2 billion international sukuk that was eight times oversubscribed, with participation from a wide range of international institutional investors.

The issue was rated A1 by Moody’s with a positive outlook and A+ by Fitch with a stable outlook. Proceeds will be used for PIF’s general corporate purposes and will be listed on the London Stock Exchange’s International Securities Market as part of PIF’s international sukuk issuance program. This offer signifies PIF’s continued commitment to its diversified sources of funding, with the sukuk program being one of them.

To emphasize its timely importance, the Financial Academy hosted the Debt Markets and Derivatives Forum 2024 last month, with the participation of Mohammed El-Kuwaiz, chairman of the Capital Market Authority. The event aimed to build a diverse portfolio of innovative solutions that align with industry trends and ensure financial sustainability.

At BMG Financial Group, we are poised to take a leading role in the evolution of Saudi Arabia's sukuk market, particularly in the innovative and emerging sector of Shariah-compliant asset securitization.

With the Kingdom's capital market rapidly maturing, we are committed to providing expert advisory services, structuring, and arranging sukuk issuances that not only meet the growing demand from local and international investors but also align with Saudi Arabia’s ambitious Vision 2030.

By partnering with key players in the securitization space and drawing on our extensive network of global financial institutions, we aim to shape the future of sukuk as a premier asset class, opening new avenues for growth and investment opportunities for our clients and stakeholders in this exciting and dynamic market.

• Basil M.K. Al-Ghalayini is chairman and CEO of BMG Financial Group.