RIYADH – Saudi Electricity Co. (SEC) Islamic bonds returned 67 percent more than Gulf corporate sukuk, buoyed by a scarcity of Shariah-compliant securities in Saudi Arabia and demand for investment-grade debt.
Islamic bond sales in Saudi Arabia rose to a record this year as demand outstrips supply. Sukuk offerings jumped to about $8.3 billion, or about 47 percent of the GCC’s total issuance this year.
Overall sales of Islamic debt in the Gulf increased to $17.7 billion this year from $3.8 billion in the year-earlier period.
"There is very strong demand for Saudi credit," Abdul Wahid Mohammad Al Matar, the head of trading at Riyadh-based Saudi Hollandi Bank, said by e-mail on August 9. "One reason are the limited offerings."
The General Authority of Civil Aviation sold 15 billion riyals ($4 billion) of Islamic bonds in January. Saudi Electricity raised a combined $1.75 billion from an issue of five- and 10-year sukuk, securities that pay returns on assets to comply Islam’s ban on interest, in March.
The company received more than $17.5 billion in bids. The sale also marked the first dollar sukuk since Dar Al Arkan Real Estate Development Co.’s $450 million Islamic bond in February 2010.
The Saudi Electricity’s 4.211 percent dollar-denominated notes maturing in April 2022 have gained 9.5 percent since their debut at the end of March.
That compares with a 5.7 percent return on corporate sukuk from the six-nation Gulf Cooperation Council, the HSBC/Nasdaq Dubai GCC Corporate US Dollar Sukuk Index showed.
The yield on the Saudi Electricity’s notes dropped to a record 3.1 percent Aug. 7. The Kingdom’s largest power producer is rated the fourth-best investment grade at Standard & Poor’s.
The Kingdom, home to about 28 million people, is pushing ahead with a $500 billion investment plan to build infrastructure, develop industries and create jobs. Saudi Electricity is also set to benefit from rising local energy consumption, which Saudi Deputy Oil Minister Prince Abdul Aziz Bin Salman forecast is increasing as much as 6 percent a year. The economy is forecast to expand 6 percent this year, the second-fastest pace in the six-nation GCC after Kuwait and on par with Qatar, according to estimates from the International Monetary Fund.
"Saudi Electricity is sort of up there as one of the most desired issuers," Jarmo Kotilaine, chief economist at Jeddah-based National Commercial Bank, said earlier. "It’s a listed company, so it’s pretty well understood what the company profile and strategy is. Of course, the sukuk market itself is still a relatively small market."
Saudi Arabia, the world’s largest oil exporter, is rated AA- at Standard & Poor’s, on par with China and Japan. The government has no outstanding dollar-denominated debt.
Still, Saudi bonds are at risk from volatility in global crude prices and China’s slowing economy, the world’s second- biggest energy consumer after the US. – SG/Agencies