Saudi wealth fund's real estate subsidiary is planning a sukuk sale

Saudi Real Estate Refinance Company (SRC), a wholly-owned subsidiary of the Public Investment Fund (PIF), is planning to inject more liquidity in the Kingdom's housing market through the issuance of one or two sukuks in the coming months, company CEO Fabrice Susini told Argaam in an exclusive interview.

Q: How has SRC evolved since its establishment in 2017 and what is your growth strategy?

A: We have been operational for less than two years, and we are proud of many achievements in a relatively short period of time. First, we have formed a world-class team and have set-up robust processes and tools that help us ensure that we remain committed to improving home ownership in the Kingdom in a sustainable way. In parallel, we remained focused on our engagement with the originators with the ultimate benefit of the home buyers in mind.

We have signed multiple MoUs with originators, deployed balance sheet, provided various solutions to originators (portfolio purchases, warehousing facilities) and borrowers (competitive LTFR mortgages) while spearheading standardization of processes and embracing international best practices.

And finally, we kick-started engagement with capital market investors with a strategy progressively rolled-out, started at the end of 2018 and the beginning of 2019 with domestic issuances from our newly established sukuk program.  

Q: Which issues still undermine the development of the Saudi housing sector?

A: The development of the housing sector requires a combination of multiple factors. Some are more technical such as the supply of adequate homes, to the adaptation or clarification of the legal framework through the providing of adapted and competitive lending solutions; while others are macro-economic such as the level of employment and disposable income, overall confidence in the future. The Vision 2030 program acts as a critical catalyst in this regard.

Today, thanks to the leadership and the vision of the Ministry of Housing (MoH) and the government, I do not think there is one or a series of issues undermining the development of the housing market standing up as a blocking point. A very holistic approach is at work and all the parameters are considered, assessed and worked on. In fact, the only “hindrance” is linked to the time required to fully develop and implement the changes at work. And even under this auspice, the change is imminent and has started as evidenced by the numbers reported by SAMA for example.

Q: How much do you plan to raise in sukuks this year?

A: As part of the SAR 11 billion sukuk program established in December 2018, we have successfully completed the issuance of SAR 750 million. These were issuances over two tranches offered to private, sophisticated investors. As we are committed to injecting more liquidity in the market, the next few months will potentially see one or two more issuances, but these will be subject to assets ramp up and market conditions.

Q: Can you share the timeline of your SAR 11 billion sukuk program?

A: There is no doubt that the sukuk program will add liquidity to the housing market, but future issuances are subject to market conditions. It is also important to note that we are driven by our actual or anticipated (but within reason) balance sheet deployment and we are confident that the future issuances will help us keep buying significant mortgage portfolios held by the originators.   

Q: What was the profit rate offered on your latest SAR 750 million sukuk? Are you satisfied with the pricing?

A: We are satisfied with the pricing especially considering that we are a new issuer and a very young company in a nascent and evolving market. At the same time, we benefit from a strong support in different shape and form from key stakeholders (from PIF our shareholder, to MoH and Ministry of Finance), a tight but constructive supervision from Saudi Arabian Monetary Authority, and a very strong governance. In a nutshell, we offer many of the characteristics of a government related entity (GRE). Going forward and as the novelty effect will recede for more issuances and more background and history; we expect this pricing to tighten.

Q: Is there any plan to issue USD denominated sukuk this year?

A: This is something we will look at in order to broaden our reach to the diverse population of investors and is a part of our strategy. At this stage, it is too early to be precise in terms of timing. We remain pragmatic as we will need to find the right balance between the ultimate benefits for the originators/borrowers in terms of funding cost and the complexity or constraints it will raise.

Q: How do you see Saudi real estate sector evolving over the next two years?

A: Nobody doubts that the real estate sector in the Kingdom has a bright future, and we expect the housing market to be more established in the coming years. In fact, I wish for the Kingdom’s housing market to have emerged as a reliable and transparent market underpinned by innovative products that attract the interest of a wide range of investors. A sort of best of its category from an emerging markets perspective.

More specifically, I see a combination of volume increase evidencing the access to more home ownership through more mortgages, diversification of borrowers and  more standardization of processes and more transparency with an ongoing “origination to refinance” mechanism where we will play a pivotal role.

Furthermore, I expect we will have created a better understanding of the product and the market with regularly engaged investors, especially international investors, and to have also laid the foundation for upcoming securitization or its equivalent, spearheading a development other financial institutions will be able to capitalize on.