Al Rajhi Bank’s SR10 billion ($2.7 billion) riyal-denominated tier-1 sukuk deal in November 2022 pushed the envelope on what was effectively the IPO of a sukuk.
In the five weeks it took Al Rajhi to complete the deal – following a quick approval by the Saudi Capital Market Authority – the bank solicited strong demand from institutional accounts. The final deal achieved a roughly 300% coverage rate, with bids from more than 125,000 investors. The transaction priced at 5.5% fixed, 60 basis points better than initially envisioned.
The structure was a Shariah-compliant perpetual callable in five years by the issuer. Since the sukuk is treated as equity, it is not liable for zakat – the compulsory Islamic tax on wealth.
The initial issuance size was SR4 billion, but, as the extent of investor interest became apparent, this was upsized to SR10 billion. Listed on Tadawul, it offered broad access to retail as well as institutional investors. This was a rare opportunity for retail buyers to get exposure to this asset class.
The deal helped finance upgrades both in Al Rajhi’s core business areas and in its digital transformation efforts. The bank acted as financial adviser, sole arranger, dealer, sukuk-holders’ agent and payment administrator for the transaction.
As well as attracting new retail investors into the sukuk, the bank is adding to the routes through which global investors might choose to diversify into Shariah-compliant investments
This was the kingdom’s first sukuk with large corporate participation. At least 30 debut corporate investors bought in to the deal in their first Islamic finance exposure. The demand came despite turbulent conditions in global markets and falling liquidity flows as central banks tightened interest rates worldwide.
It is here where the impact of this deal is most apparent. As well as attracting new retail investors into the sukuk, the bank is adding to the routes through which global investors might choose to diversify into Shariah-compliant investments.
The Saudi regulators hope that Al Rajhi has demonstrated a sukuk structure that will encourage issuers and arrangers to explore more innovative offerings in the kingdom in future.
