PIF Raises $3.5 Billion in Debut Islamic Bonds Sale
Saudi Arabia Public Investment Fund (PIF) has successfully completed its debut sale of Islamic bonds, also known as sukuk, raising a total of $3.5 billion. This landmark sale drew strong demand and marked the first major test for Middle Eastern markets.
Head of PIF’s Global Capital Finance Division Fahad AlSaif said: “This inaugural international sukuk issuance is another milestone for PIF’s medium-term capital raising strategy and a continuation of our efforts to diversify our funding sources.”
Importance of Sukuk Market
Sukuk, as Islamic financial instruments, have gained significant traction as an alternative investment option globally.
These bonds adhere to Islamic principles which prohibit the charging or paying of interest. Instead, sukuk represent ownership in a tangible asset, project, or business venture.
Debut Sukuk Sale
The PIF launched two tranches of sukuk: $2.25 billion in five-year sukuk and $1.25 billion in ten-year sukuk.
Five-year tranche was priced at 120 basis points over U.S. Treasuries, while the ten-year tranche was priced at 140 basis points over Treasuries.
The demand for both tranches exceeded expectations, with over $14 billion in orders for the five-year sukuk and over $10 billion in orders for the ten-year sukuk. This strong demand reflects investors’ confidence in the PIF and their willingness to support its initiatives.
Market Response and Pricing
Despite the geopolitical backdrop, the sukuk pricing remained in line with conventional bonds.
The PIF’s five-year sukuk priced at a yield of 5.56%, which is 50 basis points above Saudi government sukuk trading levels.
Impact of the Israel-Hamas Conflict
The sale of these sukuk is seen as a crucial test of investor appetite in Middle Eastern markets following the recent Israel-Hamas conflict.
Major investment banks, such as JPMorgan and Morgan Stanley, have downgraded their view on the region due to the escalating conflict. However, the strong demand for the PIF’s sukuk indicates that investors are optimistic about the region’s economic prospects.
PIF’s Economic Agenda
The PIF, under the leadership of Saudi Crown Prince Mohammed bin Salman, plays a vital role in driving the Kingdom’s economic agenda. The fund aims to reduce Saudi Arabia’s reliance on oil revenue and diversify its economy.
The issuance of sukuk is part of the PIF’s strategy to raise capital for its various projects and initiatives.
PIF’s credit strength received international recognition in early 2022 when global credit rating agency Moody’s assigned PIF with a first-time issuer rating of A1 and a scorecard-indicated outcome which is a measure of PIF’s credit strength on a standalone basis, of Aa2.
PIF’s scorecard-indicated outcome is the second highest globally among sovereign wealth funds that are rated by Moody’s.
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