Saudi Arabia raised USD 9 billion in its first global Islamic bond issue, the government announced today, a move analysts say could ease pressure on foreign reserves.
The sale of Islamic bonds, known as sukuks, comes after the kingdom in October turned to the conventional global debt market for the first time, raising USD 17.5 billion in a bond issue.
Saudi Arabia has also sold domestic bonds and drawn on its accumulated reserves, all in an effort to reform the economy and address budget deficits caused by a collapse in oil revenues since 2014.
"The ministry of finance received significant interest for the first international issue of the sukuk programme with an order book from investors in excess of USD 33 billion," the official Saudi Press Agency said.
There will be two tranches of USD 4.5 billion, one maturing in 2022 and another in 2027, reflecting "the strong fundamentals of the Saudi economy," it said.
Islamic financial instruments including sukuks are structured to comply with Islamic law, which does not allow the payment of interest.
Riyadh has forecast a budget deficit of USD 53 billion this year, after an even bigger shortfall last year prompted subsidy cuts and delays in major projects.
In a report this month, Saudi firm Jadwa Investment said the kingdom's foreign reserves, including securities, bank deposits and gold, had fallen to a near six-year low.
Reserves dropped to USD 514 billion in February, down USD 10 billion from the previous month and the lowest level since August 2011, Jadwa said.
"Any new international sovereign bond, or indeed sukuk issuance, should alleviate the pressure on foreign exchange reserve withdrawals," the researchers said.
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