Almarai was aiming for SAR2 Billion, but settles for SAR1.6 Billion

Saudi dairy and poultry producer Almarai settled for a 1.6 billion Riyal sukuk issuance after previously stating it was looking for a 2 billion issuance depending on “market conditions”, which it seems were not present to allow it to achieve its target issuance amount. Sukuk tend to be heavily oversubscribed and the fact that Almarai was not only able to hit its desired issuance amount, let alone achieve oversubscription indicates the sukuk market in Saudi Arabia is far from stellar due to reduced liquidity bought about largely from a halving of the oil price which accounts for about 90 percent of Saudi Arabia’s revenue.

Almarai had announced on 18 August it has obtained shareholder approval  “…to issue a new Senior Sukuk. Subject to market conditions, this issuance will be SAR denominated in a total amount of up to SAR 2 billion, fully compatible with Islamic Shariah.” Following the issuance Almarai said it was able to finance a 1.6 billion issuance. “You would not say you are looking to issue 2 billion, if you did not mean it, a better sign would have been to say 1 billion but issue 1.6 billion” said a Gulf based banker who added “Demand side conditions are tight and Almarai’s issuance does little to add confidence to the market, more so that they failed to disclose the profit rate achieved.” The lack of transparency in the Saudi debt market has been voiced previously.

Saudi Government Looks to Issue Debt to Fund Expenditure after Oil Price Collapse

On a sovereign level, Saudi Arabia issued its first debt in eight years in July 2015 believed to be a conventional bond. The 15 billion riyals ($4 billion) bond was sold to domestic banks. Before last month’s bond sale, the kingdom hadn’t issued securities with a maturity of more than 12 months since 2007.

The nation may even consider selling debt in the international markets, provided oil prices stabilize and government spending continues, John Sfakianakis, the Riyadh-based Middle East director at asset manager Ashmore Group Plc, said in a recent interview with Bloomberg.

The Sukuk market is collectively made up of a number of domestic markets dominated by Malaysia and the Gulf countries looks likely to print its lowest global issuance since 2011.