Demand is high for Alrajhi bank’s first green sukuk

Anna Jiménez Calaf/Unsplash

• Alrajhi completes $1bn sukuk
• Saudi bank raises $3.5bn subscriptions
• 51% allocated to Mena investors

Saudi Arabia’s Alrajhi Bank has completed its $1 billion sukuk – having raised $3.5 billion in subscriptions from local and international investors – as the kingdom’s lenders push to raise funds for the government’s expensive giga-projects. 

Sukuk are sharia-compliant bonds that were developed as an alternative to conventional bonds, which are not considered permissible by many Muslims as they pay interest and may finance businesses involved in activities not allowed under Islamic law.

Alrajhi, the world’s largest Islamic bank, said 51 percent was allocated to investors in the Middle East and North Africa, 8 percent in Asia, 31 percent to investors in the US and Europe and 9 percent to Saudi investors. 

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The issuance is the first sustainable Additional Tier 1 (AT1), or additional capital sukuk, in the Gulf region, where funds are placed in traceable environmentally friendly investments. 

AT1 sukuks have no fixed maturity date but are callable by the issuer after five years. Saudi banks have been issuing such “perpetual” sukuks since 2015, but none have been classified as sustainable or green. 

Analysts say the Gulf lags behind Europe in sustainable issuance because the environmental, social and governance (ESG) sector remains underdeveloped, making it difficult to place and track sustainable funding. 

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The sukuk has a size of $1 billion and a profit rate of 6 percent annually, Alrajhi said in a statement on 12 May. 

“This issuance will be used to enhance the bank’s liquidity and support the growth of its balance sheet, especially in terms of sustainable and social projects that are in line with the goals and vision of Saudi Arabia 2030,” it said. 

Alrajhi previously issued a $1 billion five-year sustainable sukuk in March, following a SAR 10 billion ($2.6 billion) Tier 1 SAR-denominated sukuk in November 2022. 

In February, the Saudi sovereign wealth fund – the Public Investment Fund (PIF) – raised $5.5 billion through its latest green bond issuance following $3.5 billion raised in October, and a second sukuk, with a seven-year term, is expected this year. 

With three years of budget deficits predicted, PIF is under pressure to provide funding for the $1.25 trillion giga-projects at the heart of Saudi Arabia’s vast economic transformation plan and is pushing local banks to maintain credit lines.