DUBAI: Saudi Arabia is in talks with banks about issuing a riyal-denominated Islamic bond, or sukuk as the kingdom abandons its aversion to sovereign-level debt to help build a local currency yield curve, sources said.
Discussions are ongoing between the Saudi Arabian Monetary Agency and local and international banks with operations in the kingdom, with an issue expected in the first quarter of next year. The sukuk will not be issued directly by the government, but will be marketed by a governmental agency or a state fund.
"Saudi Arabia has been preparing for it for over 12 months," one source said.
"The infrastructure is there, I mean in terms of analysis, market research, risk assessment. They're talking with banks on options so it's just a matter of time." Discussions are centred on technicalities such as the tenure and whether the sukuk will carry a fixed or floating profit rate.
While quasi-sovereign names have appeared in the local bond market in recent years, such as Saudi Basic Industries Corporation and Saudi Electricity Company, the Saudi sovereign has not issued debt for many years. Government debt was seen by authorities as a major problem in the late 1990s, when it was around 120 per cent of GDP.