Saudi further extends debt curve with new 30-year sukuk

Saudi Arabia has further extended its domestic debt curve with a debut issuance of riyal-denominated sukuk, or Islamic bonds, with a 30 year maturity, its longest-dated domestic debt sale.

The kingdom began offering local currency bonds in monthly auctions in mid-2015 to help cover a wide budget deficit caused by low oil prices.

It suspended those issues in late 2016 as banks struggled to absorb so much debt and began to borrow overseas, but launched monthly sukuk issues in mid-2017.

Demand for the new issuance, due in 2049, is equivalent to around SAR9.25bn ($2.47bn), which is close to 80 per cent of Saudi Arabia’s total debt issuance in April, the Debt Management Office (DMO), part of the ministry of finance, said in a statement on Thursday.

“This additional reference point would be valuable for long-term financing pricing in the kingdom as a whole; it will support developmental and infrastructure projects, as well as public and private sector debt issuances,” the DMO said.

The new 30-year debt is expected to be used as benchmark to price mortgage and savings products, and provides a new investment product for long-term investors such as pension funds and insurance companies, it added.

Saudi Arabia’s debt maturities were previously capped at 10 years, but Riyadh issued debt with durations of 12 years and 15 years in February and March, respectively.

“All of these issuances constitute a key pillar in supporting and developing the local debt market by building a yield curve,” said the DMO.

Last year the Saudi stock exchange began listing domestic government bonds to facilitate riyal issuance by encouraging secondary market trade.