Saudi Real Estate Refinance Company (SRC) announced on Tuesday the successful completion of its dual tenor SAR 4 billion ($1.067 billion) Sukuk issuances, which will ultimately provide liquidity to Saudi Arabia’s housing market.
This issuance is a part of the newly launched SAR 10 billion Saudi-Riyal Sukuk programme under which SRC, which is wholly owned by the Kingdom’s Public Investment Fund, will issue sovereign-guaranteed Sukuk targeting local investors. Sukuks are an Islamic financial certificate, commonly referred to as sharia-compliant bonds.
“It was quite significant that we achieved this success although the company is relatively young, set up in 2017, so it is was only the third time we were issuing and the first time we were issuing with the guarantee of the MOF [Ministry of Finance],” said Fabrice Susini, CEO of SRC.
While typically financial institutions such as banks are almost the sole subscribers in fixed income issuances (which offer fixed dividend payments), over 30 percent of SRC’s issuance was subscribed by a mix of asset managers, pension and government funds, and insurance companies, said Susini.
“I find this diversification in investors interesting because it is something we want to develop going forward in the domestic and one day the international market,” said Susini.
The issuance was offered in the seven and ten-year tenors and attracted an order book in the excess of SAR 8 billion which represents an oversubscription of 2.15 times.
This underscores the investor confidence in the strength of the Saudi housing market which witnessed an increase in homeownership from 45 percent in 2017 to 62 percent in 2020.
One of the fundamental elements behind this growing real estate market is Saudi Arabia’s demographics whereby more young people are coming into the age of homeownership thereby creating an increased demand for property.
“I believe the market will keep on growing because the demand, supply and ecosystem built around it are there but I am sure if it will continue to do so at the same high speed as the past few years,” said Susini.
SRC’s role in supporting Saudi Arabia’s housing market is through its provision of liquidity to the primary originators, or the banks, and mortgage companies thereby supporting them in providing more affordable housing loans and ultimately keeping the Kingdom’s real estate sector viable.
“For most of us, buying a home is a very important investment and it does not go without borrowing. So if people don’t have access to financing through mortgages, you can build whatever you want but at one point you will stop because people cannot buy the houses you are putting in the market,” explained Susini.
“We try to make sure that liquidity flows back to the system so that the builders can build homes that can be sold to people who can get mortgages from the banks. In turn, banks will be able to lend to more people and elevate the burden on their balance sheet as they interact with SRC,” he continued.
Fabrice Susini, CEO of Saudi Real Estate Refinance Company (SRC)
SRC has an essential role to play in Saudi Arabia’s 2030 Vision of achieving 70 percent homeownership in the Kingdom through “continuing to be engaged with the originators and provide them with the right solutions, tools and facilities that will help them keep generating mortgages,” said Susini.
Susini said SRC plans to be a “repeat issuer in the local market and will keep tapping capital markets.”
They are also working on the setup of their international financing programme and will be looking at heading a second channel of access to liquidity, according to Susini.
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