Saudi Arabia Deal of the Year
What structure was used for this transaction? Why did you use this particular Islamic structure? What other structures were considered?
The structure of the Saudi Telecom Company Sukuk programme is based on a combination of Mudarabah and Murabahah. It allows the client to rely on an asset light structure and does not require any regulatory approval (which may have been required under other structures such as airtime).
What is the purpose of this transaction?
The debut Sukuk issuance was part of the company’s strategy to diversify its sources of funding and increase the tenor of its financings.
What were the challenges faced and how were they resolved?
To accommodate the different requirements raised by the issuer’s Shariah advisors, the lead managers worked closely with STC to refine the Mudarabah-Murabahah Sukuk structure generally used by other Saudi issuers. The STC Sukuk structure relies on the Mudarabah investment to generate the profit payment (coupon) as opposed to using the Murabahah to cover both profit and principal amounts. This structure was an improvement on the previous structures and was therefore accepted by even the most strict Shariah practicing banks in Saudi Arabia.
Geographically speaking, where did the investors come from?
As the transaction was a local Sukuk issuance, all subscribers were from Saudi Arabia.
What are the unique features and highlights of this deal?
The inaugural Sukuk issuance by STC was a landmark success in the domestic market as it achieved several firsts as it was the first Saudi telecommunications company to access debt capital markets. STC issuance was the first debut Saudi Riyal issuance to access the 10-year maturity and has achieved the tightest pricing ever achieved by a Saudi corporate entity in the 10-year tenor. The transaction saw strong investor interest on the back of an effectively implemented marketing strategy and the Company’s strong credit profile. The transaction closed with an orderbook size of SAR4 billion (US$1.07 billion), which represents a 2.0x oversubscription rate. The communication strategy employed with regards to pricing was driven by direct investor feedback, particularly from government investors and banks. This enabled the Company to release initial price guidance to the market at a level that attracted large ticket sizes [greater than SAR200 million (US$53.29 billion)] from key government accounts and banks. As a result, the momentum built during the book building process allowed the Company to revise final pricing tighter to 70bps, which was inside all Saudi corporate issuances. STC’s strong market presence, perception with investors and relationship with financial markets was instrumental to secure strong demand and tight pricing for this inaugural Sukuk.
What is the importance of this transaction to the global Islamic finance industry?
The transaction represented a groundbreaking milestone in the development of Islamic capital markets in Saudi Arabia as STC was the first Saudi telecommunications company to access debt capital markets. This landmark transaction will encourage other Corporates to consider Sukuk as a key solution to diversify their sources of funding.
Is this deal part of a program or series? If so please provide details
The transaction was the first drawdown under STC’s newly established SAR 5 billion Sukuk programme and represented the company’s debut debt capital markets issuance.
|Summary of terms & conditions|
|Issuer / Obligor||Saudi Telecom Company (“STC”)|
|Purpose of issuance||General corporate purposes|
|Sukuk holder’s agent||Saudi Fransi Capital|
|Coupon rate / return||3M SAIBOR + 70bps|
|Maturity date||June 2024|
|Lead manager(s) / Bookrunner(s)||JP Morgan Saudi Arabia, NCB Capital Company, Standard Chartered Capital Saudi Arabia|
|Governing law||Laws of the Kingdom of Saudi Arabia|
|Legal advisor(s) / Counsel||Allen & Overy (Legal Adisor of the Issuer) and Clifford Chance ( Legal Advisor. of the Arrangers)|
|Underlying assets||Combination of Mudaraba investment and Shariah compliant commodities|
|Issuer ratings||A1 / Stable (Moody’s), A+ / Stable (Standard & Poor’s)|
|Shariah advisor(s)||Al-Awael Economic Consultation Center (as Shariah Advisors to the Issuer); NCB Capital Company Shariah Committee; Standard Chartered Bank Shariah Supervisory Committee; J.P. Morgan Saudi Arabia Shariah Advisors|
|Investor breakdown||67% Banks; 30% GREs; 3% Insurance|
|Face value / minimum investment||SAR1,000,000 (US$266,466)|
This interview was conducted with Standard Chartered Saadiq