A government sukuk program has spurred greater corporate issuance in Saudi Arabia.

Launched in 2017 with the aim to diversify funding, the Saudi finance ministry had planned to raise US$31.5 billion of Sukuk in 2019.

A new ‘primary dealer’ scheme for local-currency government sukuk was launched in 2018, under which five local banks buy the sukuk directly from the government and then make a market by quoting two-way prices to other investors. The scheme aimed at increasing demand and widening the investor base. With various tenors of up to 30 years, the Saudi government’s program has helped to establish a domestic benchmark sukuk yield curve. A growing number of corporates such as Saudi Telecom Company, Savola and Al Marai issued local currency sukuk in 2019.

Domestic Incentives

Additionally, Saudi regulators introduced a number of incentives in 2019 for corporate sukuk issuers and investors to encourage further issuances and increase trading activity in the secondary market, as stated in the Islamic finance development indicator report for 2019 produced by the Islamic Corporation for the Development of the Private Sector, part of the Islamic Development Bank.

Corporates now benefit from lower regulator fees for new and repeat issuers as well as smaller face values for sukuk from SAR 1 million to SAR 1,000 to offer easier access for retail investors. Lower trading commissions in addition to zero tax/zakat on investments in domestic sovereign sukuk also promise a more active and liquid secondary market.