Saudi Arabia is in talks with banks about issuing a riyal-denominated Islamic bond, or sukuk, five banking sources said. High-level discussions are currently ongoing between the Saudi Arabian Monetary Agency (SAMA) and a number of local and international banks with operations in the Kingdom regarding the details, the sources said, with an issue expected as early as the first quarter of next year. The sukuk will not be issued directly by the government but will instead be marketed by either a governmental agency or a state fund, three of the sources said. “Saudi Arabia has been preparing for this for over 12 months,” a source involved in the process said. “The infrastructure is there, I mean in terms of analysis, market research, risk assessment. They're talking with banks on different options so it's just a matter of time.” The discussions with banks are centered on the technicals of the issue, such as the tenor and whether the sukuk will carry a fixed or floating profit rate, a banker in the Kingdom said. On Sunday Al-Arabiya TV channel quoted Prince Fahd Bin Abdullah Bin Mohammed Al-Saud, president of Saudi Arabia's General Authority for Civil Aviation (GACA), as saying that GACA will issue a sukuk within one or two months to help finance its new SR27 billion ($7.2 billion) airport in Jeddah. “We have agreed with the finance ministry to issue a sukuk which will be paid back by revenue from the Civil Aviation Authority, and it will be issued soon… I believe within a month or two,” said Prince Fahd Bin Abdullah. Sukuk are exceptionally well positioned, serving as a bridge between the large pools of capital in the Kingdom and the massive infrastructure investment requirements, which are variously put at some $750 billion or more. Plans have also been mooted to give foreign institutions access to the sukuk market. Retail investors are increasingly able to tap the sukuk market both directly and through a growing number of sukuk and money market funds.
