(Adds background, details)
By Davide Barbuscia
DUBAI, April 5 Saudi Arabia has chosen a hybrid
structure for its debut international sukuk, the prospectus for
the offer showed, a format widely used in the Saudi local debt
market, but not the most popular for sovereign issues.
The Islamic bond, expected to go up to $10 billion, will be
the country's second international debt sale after a $17.5
billion conventional bond in October last year. That bond issue,
the largest ever sold across emerging markets, was part of an
effort to diversify Saudi Arabia's funding sources to plug a
budget deficit caused by lower oil prices.
Saudi Arabia will start meeting fixed income investors for
the sukuk, a dual-tranche Islamic bond with five- and 10-year
maturities, early next week.
An amount equal to 51 percent of the bond proceeds will be
used in a mudaraba agreement, a form of Islamic investment
management partnership. The remaining 49 percent of the proceeds
will be used under a murabaha facility by the trustee, a Cayman
Islands-incorporated company called KSA Sukuk Limited, to
purchase sharia-compliant commodities, the prospectus said.
Such a hybrid structure, which replicates the
riyal-denominated sukuk offer launched by oil giant Saudi Aramco
earlier this month, is common in the Saudi local currency debt
market. A different lease-based (ijara) sukuk structure has been
the most commonly used by countries raising money via
international debt issuances.
A hybrid structure might be too complex for some
international investors to the point of possibly testing their
appetite for the deal, bankers told Reuters last week.
Citigroup, HSBC and JP Morgan are the
global coordinators mandated to arrange investor meetings ahead
of the sukuk offering. They are joined by BNP Paribas,
Deutsche Bank and NCB Capital as lead managers and
(Editing by Saeed Azhar and Jane Merriman)