Transcript saudi_bonds.ppt

The Characteristics of the
Saudi Fixed Income Market
Basic Features of the Market
• Bonds and Sukuk Could be Public or Private
– Public issues are all Sukuk and it’s listed and traded
in Tadawul Total number of listed issues is 6.
– Private issues could be bonds or Sukuk and it’s all
traded OTC. Total number of private issues is 35.
• The market is divided by maturity
– Notes: Half of the issues in the market mature within
five years.
– Sukuk: The other half of the issues are all Sukuk with
maturity greater than ten years.
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© 2012 Cengage Learning. All Rights Reserved. May not scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Bond and Sukuk Characteristics
• Intrinsic Features
– Coupon: fixed, floating and zero coupon. Most of
issues, specifically the sukuk, are with floating rate.
– Term to maturity: Most of the issues are Term bonds
that has one maturity date. There are two serial Sukuk
(amortizing) that has a series of quarterly maturity
dates.
– Principal value (par value): the original value of the
obligation starts from 10,000 and can reach 100,000
for listed issues. The par value of all the private issues
is 1 million.
– Type of ownership: all issues are registered not bearer
bonds and sukuk.
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© 2012 Cengage Learning. All Rights Reserved. May not scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Bond and Sukuk Characteristics
• Indenture provisions
– The indenture is the contract between the issuer and
the bondholder specifying the bond's features and the
issuer’s legal requirements. A trustee ( Saudi banks)
insures that all indenture provisions are met, including
interest payments and principle.
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© 2012 Cengage Learning. All Rights Reserved. May not scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Type of Issues in the Saudi Fixed
Income Market
– Most of the issues are Secured, and it’s all sukuk.
These issues are backed by a legal claim on some
specified property of the issuer in case of default.
– Unsecured issues, which are bonds. These issues are
backed only by the promise of the issuer to pay the
coupon and the principle at the time of maturity. So
they are secured by the issuer’s credit.
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Type of Issues in the Saudi Fixed
Income Market
– Half of the issues are Callable and they tend to have
higher coupon than the other issues.
– There are few deferred call issues, where the issuer
can’t call the bonds for a period of time, e.g. 5 to 10
years. At the end of the deferred call period the issue
become freely callable.
– There are few Sinking issues, specifies that the bond
must be paid off systematically during its life rather
than only at maturity.
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Issuers and investors in the Saudi
Fixed Income Market
– Issuers could be listed or not listed in the Saudi stock
exchange. Those issuers are banks, petrochemical
companies, and retail companies.
– Individual investors are few, most of the investors are
Institutional, those investors are:
 Life Insurance Companies
 Commercial Banks
 Government
 Mutual Funds
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© 2012 Cengage Learning. All Rights Reserved. May not scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Rating of the Saudi Fixed Income
Securities
– Most issues are not rated by one or more of the
rating agencies, only few issues are rated.
– The three major rating agencies
 Moody’s
 Standard and Poor’s
 Fitch Investors Service
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The Internet Investments Online
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http://www.bondheads.com
http://www.investinginbonds.com
http://www.fitch.com
http://www.moodys.com
http://www.standardandpoors.com/ratings
http://www.bradynet.com
http://www.publicdebt.treas.gov
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© 2012 Cengage Learning. All Rights Reserved. May not scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.