Saudi Arabia’s Public Investment Fund (PIF) is set to raise $3.5 billion in its first sale of dollar-based Shariah-compliant bonds known as Sukuk which will be listed on the London Stock Exchange’s International Securities Market.
A Glance at the Sukuk Market
Sukuk, often referred to as Islamic bonds, have gained substantial prominence over the past decade, driven by a global surge in demand for Islamic financial products and services.
Sukuk issuances are likely to remain a crucial funding instrument for governments, financial institutions, and corporations in the foreseeable future.
According to the FTSE Shariah Global Indexes, the London Stock Exchange (LSE) has been a key global hotspot for Sukuk listings. To date, the LSE has facilitated the raising of more than $50 billion through 68 Sukuk issuances.
The LSE offers issuers a choice of routes to the market, namely the International Securities Market and the Main Market, both witnessing landmark sukuk deals across various sectors.
A Closer Look at PIF’s Historic Sukuk
The PIF, Saudi Arabia’s sovereign wealth fund, recently issued its first-ever dollar-denominated sukuk, totaling $3.5 billion. The sukuk consists of two parts: $2.25 billion set to mature in 2028 and $1.25 billion in 2033.
This sukuk issuance drew tremendous interest, being oversubscribed more than seven times, with orders exceeding $25 billion. This strong demand reflects investor confidence in the PIF and its robust credit profile.
The Sukuk certificates are set to be listed on the London Stock Exchange, and the PIF plans to utilize the funds raised for its general corporate needs.
This sukuk issuance forms part of PIF’s new international trust certificate program and aligns with its broader strategy to raise capital over the medium term.
The Growing Influence of BRICS and Global South
The issuance of PIF’s sukuk comes at a time when the global economy is witnessing a shift in power dynamics. The Brazil, Russia, India, China, and South Africa (BRICS) bloc’s expansion and the rise of the Global South show an evolving economic landscape.
Economies such as China, and South Korea, and the expanding economies in East and Southeast Asia are rapidly gaining ground.
The Asian Development Bank estimates that Asia and the Pacific will grow by 4.8 percent in 2023 and 2024, further consolidating Asia’s position as a critical anchor for the global economy.
Saudi Arabia’s PIF and Its Diversification Strategy
The PIF is central to Saudi Arabia’s diversification strategy. As one of the world’s largest sovereign wealth funds, the PIF manages about $620 billion in assets.
Its funding sources are diverse, including retained earnings from investments, capital injections from the government, government assets transferred to the PIF, and loans and debt instruments.
The issuance of the $3.5 billion sukuk is another milestone for PIF’s medium-term capital-raising strategy and a continuation of its efforts to diversify its funding sources. Over the past years, PIF has established 89 companies, focusing on 13 strategic sectors.
London Stock Exchange: A Leading Platform for Sukuk Transactions
The London Stock Exchange remains a crucial global venue for Sukuk listings. A London listing assures investor diversification for sukuk issuers, as evident from recent transactions.
Key players in the Islamic Finance industry, including the Islamic Development Bank and the Islamic Corporation for the Development of the Private Sector (ICDPS), continue to list on the LSE, solidifying London’s position as a leading platform for landmark sukuk transactions.
Exchange-Traded Funds on Islamic Indexes
In addition to sukuk listings, the London Stock Exchange also hosts a vibrant market in exchange-traded funds (ETFs). These include three Shariah-compliant ETFs, available through six multi-currency lines based on Islamic indexes.
ETFs are open-ended index-tracking funds listed and traded on exchanges like shares. By trading a single share, users can efficiently gain access to an entire index without the burden of investing in each of the constituent stocks, making ETFs a highly efficient and cost-effective investment.
The Future of the Sukuk Market and Islamic Finance
The global sukuk market shows promising potential for growth, with Saudi Arabia and Malaysia expected to continue leading global sukuk issuances.
According to Moody’s Investors Service, global sukuk issuance is forecast to “level off” in the range of $170 billion to $175 billion in 2023, after a 10 percent fall in 2022 to $178 billion.
As the world’s largest Islamic finance market, with total assets across sectors exceeding 3.1 trillion Saudi riyals ($826.7 billion), Saudi Arabia is the largest global issuer of sovereign sukuk. Its co-operative insurance sector is the fastest growing worldwide, approaching 27 percent growth in 2022.