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Saudi Investment Bank (Saib) has picked the investment banking arm of Riyad Bank to arrange a subordinated Islamic bond issue, banking sources said on Thursday, the latest lender in the kingdom to eye a capital-boosting sukuk offering.
The lender, Saudi Arabia's seventh-largest listed bank by assets, has chosen Riyad Capital for the riyal-denominated offering, two sources said, speaking on condition of anonymity as the information is not public. One added that the transaction could take place before Ramadan.
The Muslim month of fasting is due to begin at the end of June this year.
Saib could not be reached for comment.
However, Saib shareholders are due to be asked at the bank's annual general meeting on April 1 to approve the issuance of sharia-compliant "debt instruments of all kinds", according to a March 6 bourse filing.
The sukuk will enhance the bank's Tier 2 - or supplementary - capital.
The bank's total capital adequacy ratio at the end of 2013, which combines both Tier 1 - or core - and Tier 2 capital, and is a key indicator of the bank's financial health, stood at 15.12 per cent, down from 17.62 per cent at the same point of 2012.
While lenders in the kingdom have high capital ratios compared to Western banks, due to the regulator's conservative stance, a period of sustained lending growth has led many banks to sell such instruments to strengthen their reserves.
Bank lending grew at its slowest clip in two years in January, but was still at a substantial 12.3 per cent year-on-year, according to central bank data.
National Commercial Bank, the kingdom's largest lender, sold a 5 billion-riyal ($1.33 billion) subordinated sukuk last month.
Meanwhile, Riyad Bank completed a 4 billion-riyal issue in November, and Saudi Hollandi Bank priced a 2.5 billion-riyal offering in December.
The Islamic bond will be of benchmark size, which is traditionally understood to mean upwards of $500 million.
The sources said it was currently unclear if STC was looking to complete a sukuk issue in the local Saudi market.
DIB has mandated First Gulf Bank, HSBC, Maybank, National Bank of Abu Dhabi, Standard Chartered Bank and itself to arrange the meetings in Asia and Europe.
A deal from the emirate is expected before the end of April, three sources told Reuters earlier this month.