Saudi Real Estate Refinance Co aims to raise around $800m via domestic sukuk

DUBAI – Saudi Real Estate Refinance Co (SRC), the Saudi equivalent of US mortgage finance company Fannie Mae, will soon issue around 3 billion riyals ($798.34 million) in local currency sukuk, or Islamic bonds, its chief executive announced on Tuesday.

HSBC, Bank AlJazira, Al Rajhi, Riyad Capital and SNB Capital are arranging the debt sale, which is expected as early as next week, CEO Fabrice Susini told Reuters in an interview.

The company is in talks with local banks to refinance real estate finance portfolios and the sale of sukuk is in anticipation of closing those transactions, Susini said.

“We have a few trades coming up in the coming weeks, so we’re anticipating buying and wanting cash ready to deploy,” he said.

The show will be the first since the SRC received regulatory approval to double its domestic show schedule to 20 billion riyals from 10 billion riyals.

The SRC’s balance sheet doubled between 2020 and 2021 and is expected to double again this year compared to last year, Susini said.

Rising interest rates slowed mortgage lending in Saudi Arabia in April and May, although the rate of growth accelerated again in June and July. The research showed that banks’ exposure to mortgages rose 30% in the second quarter, compared to 60% growth in the first quarter, Susini said.

“My feeling is, on the one hand, you can’t ignore that if rates go up – which they do – you’re likely to see a slowdown in mortgage origination. And so the numbers we saw in June , July are perhaps an indication of a blip, but it is not necessarily a long trend (if rates continue to rise).”

Macroeconomic conditions such as high oil prices, strong GDP growth, job growth and government subsidies are supporting the market, but mortgage growth could slow further depending on the extent of rate increases of interest and the evolution of these macroeconomic conditions, Susini said.

He said many of the mortgages already taken out were fixed rate. “This will insulate borrowers and should limit the impact of rising rates on borrowers’ ability to repay.”

The SRC, which is owned by the country’s sovereign wealth fund PIF, aims to issue its long-planned first dollar-denominated sukuk in the second quarter of next year, Susini said. JPMorgan, HSBC and Societe Generale are setting up the issuance program for this debt sale, he said.

(Reporting by Yousef Saba. Editing by Jane Merriman)

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