Saudi Arabia is expected to announce soon a potential new U.S. dollar-denominated sukuk deal, sources familiar with the matter said.
The size of the planned sukuk, or Islamic bond, is to be determined and depends on market appetite, but it is unlikely to match Saudi Arabia’s previous jumbo debt transactions, said the sources.
Saudi Arabia, whose debt management office did not immediately respond to a request for comment on the transaction, has established itself as a top regional debt issuer over the past two years after its first move into the international markets in late 2016, when it sold $17.5bn in conventional notes – the largest bond ever issued across emerging markets.
The new debt issue would be Saudi Arabia’s second international sukuk, following a $9bn debut deal last year.
After a recent rise in oil prices, Saudi Arabia’s budget deficit in the second quarter narrowed to SAR7.36bn ($1.96bn) from SAR34.3bn in the first quarter, the finance ministry said last month.
The kingdom, which is working on a number of economic reforms aimed at diversifying its oil-reliant economy, has forecast a fiscal deficit of SAR195bn or 7.3 per cent of gross domestic product (GDP) this year, down from SAR230bn last year. It aims to balance its budget by 2023.
Saudi Arabia over the past two years has raised $50bn through international conventional and Islamic bonds.
It covered most of its hard currency funding needs for this year with a $11bn bond sold in April, the head of the kingdom’s debt management office, Fahad al-Saif, told Reuters after that debt sale.
But he said an international sukuk deal was on the cards for the second half of this year in order to maintain the country’s presence in that market and to provide supply to sharia-compliant investors.
A potential new deal would add to a thick pipeline of debt transactions being prepared in the region, including from banks and corporates in the United Arab Emirates, Saudi Arabia and Oman.
Saudi Arabia’s Islamic Development Bank, a multilateral development bank, announced on Tuesday it has hired banks for a five-year benchmark sukuk, while Apicorp, an entity owned by the 10 members of the Organisation of Arab Petroleum Exporting Countries, was in the market offering a five-year conventional bond.