Saudi Electricity returned to the dollar market for the first time in over two years to a stellar response, with its dual-tranche sukuk comprising a green and a non-labelled note more than seven times subscribed.
The US$2bn deal attracted Islamic accounts and international investors, enabling both tranches to price tight relative to fair value. Indeed, the US$1.2bn 10-year green sukuk came through fair value, while the US$800m 30-year non-labelled sukuk landed, at most, with a small premium, though some would argue it came in line.
After a short marketing period, the leads opened books on Monday at 165bp area over Treasuries for the 2033s and plus 240bp area for the 2053s. One lead said those levels were about 40bp back of fair value, with investors using the sovereign and Public Investment Fund as the main reference points.
Unlike those two issuers, Saudi Electric (A1/A/A), which is majority owned by PIF and is the kingdom's electric transmission monopoly, is not EMBI-eligible, but that didn't stop investors from raining in orders. The book for the 10-year sukuk closed in excess of US$9.2bn, while for the 30-year sukuk it was more than US$6.2bn.
The deal found favour with Faisal Ali, senior portfolio manager at Azimut, who at IPTs said: "We like the deal based on IPTs, as well as on a positive outlook for the Saudi economy. We expect final pricing to tighten considerably from IPTs but we expect both tranches to trade well in the secondary, especially the 30-year given there is very limited liquid sukuk paper in this segment. We expect the deal to be supported by GCC institutions looking to deploy ample regional liquidity and by foreign accounts that want to get exposure to Saudi Arabia due to the country’s positive economic outlook."
Given the level of demand, pricing was tightened on the 10-year to plus 120bp to yield 4.632% and on the 30-year to plus 205bp to yield 5.684%. A second lead said the 10-year came about 10bp through fair value.
"To give some context, pricing was flat to where the sovereign's conventional 2033s were trading," he said. "It was anchored by Islamic accounts." The green angle played a more marginal role, although he said dedicated funds were present.
The 30-year note appealed more to international investors given the tenor, he said. "It came flat to PIF, which is an EMBI-eligible name," he said. However, prices on Refinitiv showed that PIF's February 2053s were bid at 199bp, suggesting a small premium.
The deal was Saudi Electric's first since September 2020, when it brought the first green bond financing out of Saudi Arabia with a US$1.3bn dual-tranche sukuk offering. It issued five-year and 10-year notes, each for US$650m.
"It's a rare name in the market, so there was decent scarcity value," said the second lead.
HSBC, JP Morgan and Standard Chartered were the global coordinators on the Reg S deal. Active bookrunners were First Abu Dhabi Bank, Mizuho, MUFG, SMBC Nikko and SNB Capital. Another seven banks were passive bookrunners. HSBC and MUFG were green structuring agents.