Date: October 2023
Issuer: SUCI Second Investment Company
Guarantor: Public Investment Fund
Size: $3.5 billion
Structure: Al-wakala
Tenor: Five-year; 10-year
Banks: Citi, HSBC, JPMorgan, Standard Chartered (global coordinators); Al Rajhi Capital, BofA Securities, Crédit Agricole CIB, Deutsche Bank, Emirates NBD Capital, First Abu Dhabi Bank, Goldman Sachs International, Mizuho, SNB Capital (active joint bookrunners); Abu Dhabi Commercial Bank, Albilad Capital, Alinma Investment, Aljazira Capital, Bank of China, BNP Paribas, MUFG and SMBC Nikko (passive joint bookrunners)
Among many high-profile debuts last year, the $3.5 billion dual tranche sukuk from Saudi Arabia’s sovereign wealth fund was the deal that most captured the market’s attention.
This was as much to do with the $925 billion Public Investment Fund’s (PIF) size and scale – such that it is a priority client for global investment banks and institutional investors – as it was the significance of it raising international sukuk financing for the first time.
Such a profile is powerful on the global capital markets, and when combined with structural innovation, transactions like this tend to fly. And fly it did, despite pricing of the tranches in late October last year coming at a time when the Middle East crisis was escalating.
Navigating through this context, further complicated by lingering rates volatility, global coordinators Citi, HSBC, JPMorgan and Standard Chartered, together with a formidable group of active and passive bookrunning banks, built an orderbook of $25 billion at its peak, enabling pricing of the $2.25 billion five-year and $1.25 billion 10-year tranche at tight levels to PIF’s outstanding dollar curve.
In the end, the five-year and 10-year were priced at 120 basis points and 140bp, respectively, over the relevant US Treasuries, representing next to no new-issue concession versus PIF’s conventional bond curve. The profit rates for the five- and 10-year were 6% and 6.25%.
Fundamental to the PIF was the structural innovation in the transaction
Achieving attractive pricing amid a turbulent market backdrop was one of the key objectives for PIF, together with securing a diversified and high-quality orderbook, and selling a truly benchmark-sized transaction, which, at $3.5 billion, was $1 billion over its initial target.
These achievements are important, but equally so – and fundamental to the PIF, via the issuing entity SUCI Second Investment Company, issuing the sukuk it did – was the structural innovation in the transaction.
A key challenge for PIF, originally established as a holding company, was that in issuing a sukuk, it would need to place enough tangible assets to cover at least 55% of the issuance size, which was not attractive. To address this, the structuring banks – Al Rajhi Capital, Emirates NBD Capital, HSBC, Standard Chartered – engineered a unique structure that would use 0% tangible assets and is AAOIFI-compliant, which would ensure maximum access for shariah investors.
In a year when there were several structural firsts in the sukuk market, this transaction stood out for being the first to use shariah-compliant listed and unlisted shareholdings as an asset class in its structuring.
Essentially, the PIF’s sukuk structure now makes it easier for holding companies globally to use eligible shares in portfolio companies as sukuk assets, potentially prompting other such issuers to tap the global sukuk market for the first time.
It is for this reason and for issuing such a blowout transaction – in terms of size, pricing and orderbook – amid a turbulent backdrop that this debut is Euromoney’s sukuk of the year.
