Bank Al-Jazira, one of the leading Islamic banks in Saudi Arabia, announced its intention to issue additional Tier 1 capital sukuk denominated in Saudi Riyals. This move comes as part of a SAR 5 billion Additional Tier 1 capital sukuk issuance program, which aims to strengthen the bank's capital base and support its overall strategic and commercial objectives.
General context and importance of Tier 1 instruments
Tier 1 sukuk are an important financial instrument for banks and financial institutions to strengthen their capital adequacy. These sukuk are classified as additional capital due to their characteristics, which make them similar to shares. They are perpetual (without a fixed maturity date) and their dividend distributions can be postponed or canceled under certain circumstances, enabling them to absorb losses without leading to the bankruptcy of the issuing institution. The issuance of these instruments is in line with the requirements of the Basel Committee on Banking Supervision (Basel III), which mandates that banks maintain higher levels of high-quality capital to withstand potential financial crises and promote the stability of the global banking system.
Expected impact on the local economy and banking sector
Bank Al-Jazira's decision reflects the general trend among Saudi banks to strengthen their financial positions to capitalize on the immense development opportunities offered by Saudi Vision 2030. With the launch of mega-projects in the tourism, entertainment, real estate, and technology sectors, the need for a robust banking sector capable of providing the necessary financing for these projects is growing. By bolstering its capital base, Bank Al-Jazira enhances its lending capacity and ability to finance major projects, directly contributing to driving economic growth and diversifying the Kingdom's sources of income. This move also deepens the local debt market and provides new investment channels for qualified investors seeking Sharia-compliant investment instruments with stable returns.
Details of the upcoming offering
The bank clarified in its official statement on the Saudi Stock Exchange (Tadawul) website that the issuance will be conducted through a private placement limited to qualified investors within the Kingdom of Saudi Arabia. The bank has appointed Aljazira Capital and Al Rajhi Capital as joint lead managers and bookrunners for the potential offering. The bank indicated that the final value and terms of the sukuk issuance will be determined later, depending on prevailing market conditions. This offering is subject to obtaining the necessary approvals from the relevant regulatory authorities, including the Saudi Central Bank and the Capital Market Authority, and will be conducted in accordance with applicable laws and regulations.
