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PIF’s sukuk may test investor appetite for Middle East

PIF governor Yasir Othman al Rumayyan. The issue would be PIF's second this year after it raised $5.5bn from green bonds in February Reuters
PIF governor Yasir Othman al Rumayyan. The issue would be PIF's second this year after it raised $5.5bn from green bonds in February
  • Regional tensions could ‘colour demand’
  • Coordinating banks nominated
  • Dual tranche of 5 and 10-year sukuk

Saudi Arabia’s Public Investment Fund is planning to issue its first dollar-denominated Islamic bonds, but the move could be a test of investor appetite as regional tensions rise over the conflict in Gaza. 

Citi, HSBC, JP Morgan and Standard Chartered Bank have been nominated as global joint co-ordinators to organise a series of investor calls for a dual tranche of 5 and 10-year tenor senior sukuk.

Sukuk are sharia-compliant bonds developed as an alternative to conventional bonds that are not considered permissible by many Muslims.

PIF “should not have trouble attracting investor interest”, said Karen Young, an economist at Columbia University’s Center on Global Energy Policy. 

However, heightened political tensions in the region could provide a test of the latest offering. 

“The timing is the key factor in this approach to fixed-income investors. How investor sentiment sees risks in the region in light of the war in Israel and Gaza could colour demand for the issuance,” Young added. 

The issue would be PIF’s second this year after it raised $5.5 billion from green bonds in February and $3 billion in October 2022, its debut bond sale. That sale comprised tranches of five, 10 and 100 years – the first green bond of that tenor.

The sovereign wealth fund, which is currently worth $778 billion, has said it expects to invest more than $10 billion by 2026 in eligible green projects, including renewable energy, clean transport and sustainable water management. It also intends to invest about $40 billion domestically each year through 2025. 

PIF is the main vehicle driving Saudi Arabia’s economic diversification plans to reduce reliance on oil through a massive domestic investment programme. 

The total value of real estate and infrastructure projects so far has been valued at $1.25 trillion, in addition to $250 billion of commissioned projects – mostly in housing, as the country plans to reach a population of 50 million by 2030. 

Among the giga-projects are the futuristic city Neom, the Red Sea Project and Amaala tourist resorts, entertainment cities Qiddiyya and Seven, the Roshn and Jeddah Central housing projects, and five economic zones, as well as a series of infrastructure projects. 

PIF’s bond issuances make clear that the kingdom will still be able to raise money from debt markets to keep funding its development projects despite a slowdown in growth and budget deficits caused by an Opec+ oil output cut. 

The World Bank has forecast that the Saudi economy will contract by 0.9 percent this year with a budget deficit of 2 percent of GDP – a slightly more hawkish assessment than Saudi Arabia’s most recent estimations of an economic slowdown.