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Saudi Arabia Sets ‘Benchmark’ for Emerging Markets | ASHARQ AL-AWSAT English Archive 2005 -2017
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A Saudi man shows Saudi riyal banknotes at a money exchange shop in Riyadh. (Reuters)

Riyadh- Saudi Arabia’s success in issuing its first internationally offered bonds, which touched a dashing excess demand of $ 33 billion, is proof that the Kingdom is on track to become the “benchmark” for emerging markets, with the expectations that the move will attract huge funds to support the public budget and infrastructure projects.

The Ministry of Finance received significant interest for the first international issue of the Sukuk program with an overbooking of US $33 billion by investors, Saudi state-owned news agency SPA said.

Many sectors are expected to benefit from collected funds, such as real estate and cement companies.

“The issuance of the first global Islamic bond issue by the Saudi finance ministry with an order book from investors in excess of $33 billion confirms the success of the Saudi financial policies,” said economist Salim Baajajah in a telephone interview with Asharq Al Awsat.
This issuance will strengthen trust in the Saudi national economy, he added.

The total amount of the issue has been sized at US $9 billion (equivalent to SAR 33.75 billion). It consists of two tranches of bonds, US $4.5 billion-worth certificates maturing in 2022 and US $4.5 billion-worth certificates maturing in 2027.

This reflects the strong fundamentals of the Saudi economy and illustrates the role of the Debt Management Office “DMO” as part of Vision 2030, SPA reported.

It is believed that the success in this issuance confirms that the Kingdom is moving confidently towards building a stronger, more profound economic environment, said Baajajah.

Saudi Arabia aims to foster an economy capable of absorbing challenges and generating opportunities at the same time. It is expected that many funds will flow to the country under this bond offering, supporting the public budget and vital projects, Baajajah added.

Islamic financial instruments, including sukuks, are structured to comply with Islamic law, which does not allow the payment of interest.

“The Saudi international Sukuk program has been long awaited by the Islamic finance industry, nearly decades— it is the right move at the right time, and is consistent with national economic policies,” said Mohammed Al-Khneifar, an expert on Islamic markets at the Islamic Development Bank(IDB).

“The offering is a distinct entry into the global debt markets,”Khneifar added.

“Such a large-scale issuance, is like no other known, and will not be repeated by any country, save Saudi Arabia itself,” he added.

The financial expert expressed great enthusiasm towards the Kingdom joining the league of states that offer sovereign bonds.