• The numbers of fixed income fund subscribers in Saudi Arabia jump 355% .. the highest in 11 years


    The number of subscribers to public investment funds, specializing in fixed income assets, rose to the highest historical pace in 11 years.​

    The monitoring unit of the reports in the "Al-Iqtisadiya" newspaper showed that the number of subscribers grew by more than 355 percent, compared to the average number of subscribers between 2009 and 2018.

    The number of subscribers increased to 752 subscribers by the end of 2019, supported by four reasons, most notably the launch of funds specializing in investment in government bonds, sovereign monthly issuances, as well as increasing the size of financial culture through media awareness, in addition to the presence of technical obstacles for most brokerage firms that prevented the ability of individuals On direct investment across stock trading platforms.

    In the same context, statistical data revealed that individual investors in Saudi Arabia prefer to invest in government savings bonds through funds specializing in debt instruments, compared to the option of direct investment through secondary markets or the option to participate in the new main offering.
    This comes 12 months after the decision to reduce the nominal value of government debt instruments from one million riyals to one thousand riyals, which was implemented in June 2019​.
    The number of investors in debt instruments through specialized funds at the end of last year reached 752 participants, compared to 24 individuals who preferred direct investment at the end of the same period the previous year. That is, the preference for investing in savings bonds through funds, at the expense of individual direct investment, increased by 3033 percent, according to the numbers of investors in both approaches​.

    Funds subscribers
    In order to make a close comparison to determine the amount of jump in the number of subscribers in debt instrument funds, with the government heading for such instruments, the average total number of subscribers during ten years (between 2009 and the end of 2018) reached 165 subscribers.
    That is, the growth rate of 752 new subscribers by the end of 2019, exceeding 355 percent, compared to the average rate for the previous ten years (between 2009 and the end of 2018).
    The monitoring was based on several sources, including the annual report issued in the second quarter of this year by the Capital Market Authority, as well as the quarterly reports on Tadawul. The monitoring was not based on the number of participants in the money market funds, which allocate a large part of their assets to government bonds, which also recorded a growth in the number of their subscribers, which amounted to 0.5 percent.
    The monitoring also did not take into account the funds, which are created by asset management companies for institutional investors in order to invest in a variety of assets, including government bonds.

    Trading platforms
    The scarcity of the availability of electronic trading platforms, which allow individuals to directly purchase savings instruments, which the government expanded its investment department to include individuals in mid-2019, has led to a record increase in the numbers of individuals, who went to the indirect investment option through specialized investment funds for this type of financial asset.
    He told Al-Eqtisadiah, a source close to the financial brokerage firms licensed to operate in Saudi Arabia, that, to date, most of these companies have not provided the direct investment characteristic of individuals in savings bonds through electronic trading, despite the efforts of regulatory agencies eager to develop fixed income markets. In the local market.
    The source stated that after a year has passed since the decision to reduce the face value to one thousand riyals, there are two brokerage firms (Al-Jazirah Capital and Derayah Financial), out of 31 licensed companies, which provided a direct trading feature for government debt instruments through their electronic platforms.

    Direct investment from individuals
    The value of listed bonds and bonds in Saudi Arabia increased to 372.7 billion riyals at the end of the first quarter of 2020, registering a growth of 24.3 percent, equivalent to 72.96 billion riyals, compared to its value at the end of the first quarter of 2019, amounting to 299.74 billion riyals.
    On a quarterly basis, its value increased by 5.1 percent, equivalent to 18.2 billion riyals, compared to its value at the end of the previous year 2019, which amounted to about 354.5 billion riyals​.
    According to the monitoring unit of the reports in the "Economy" based on the data of the Capital Market Company "Tadawul" and the data of the Capital Market Authority, the value of listed bonds and bonds returns to 104 owners at the end of the first quarter 2020, compared to 99 owners at the end of 2019 and compared to 69 owners at the end of the first quarter 2019.
    Ownership of listed bonds is divided into four categories: individuals, companies, governmental and semi-governmental entities, and funds, including Gulf investment funds.
    The value of individuals' ownership of listed bonds and bonds reached 72.0 million riyals owned by 26 individuals at the end of the first quarter of 2020, compared to 74.5 million riyals owned by 24 individuals at the end of 2019.​

    ​​Methods of trading in government bonds​
    Unlike investment funds, and two platforms for electronic trading of sukuk by two brokerage firms, two methods of trading sukuk are available to individuals, either by going to the headquarters of the brokerage firm and making a purchase or sale request, or the other way is to place the request by talking to the broker by phone.
    However, the investor must conduct his own study of the issues, then choose the trading symbols and determine the amount of sukuk he desires​

    ​​​Fixed-income investment funds
    Fixed-income debt instrument funds are like investment platforms, which generally invest in debt instruments such as bonds, bonds, etc., issued by companies, government and semi-government agencies, or any other entity entitled to issue any type of debt instruments. The prices of debt instruments on bonds and bonds are affected by several factors, for example, the interest rate, the bond’s rating from the rating companies, and the risks of stopping periodic payments from companies in case of default and are rare with public offerings.​

    Sharia Fatwa​
    ​The mechanism of making debt instrument offerings in the markets - which Al-Eqtisadia viewed - shows that issuers obtain a fatwa authorizing investment in Sukuk before marketing it to investors.
    Therefore, the fatwa authorizing investment in government bonds has been obtained in advance. In July 2017, the National Center for Debt Management, on behalf of the Ministry of Finance, thanked him, in a press release, to the Development Bank that helped the center in structuring the Sukuk. Bearing in mind that issuers that do not have central Sharia bodies in their countries for banking activities, those bodies use the Sharia bodies of banks arranged for issuance in order to provide Sharia advice about structuring Sukuk and issuing a fatwa​.
    Looking at the Saudi dollar versions, we will find that they used the same structure of the hybrid instruments, which is used in conjunction with the local versions.
    The 2017 issuance was authorized by the Sharia Councils of Banking Jurists, who work for the benefit of the banks arranging the issuance, in light of the absence of a central Sharia board specialized in Islamic transactions in the Kingdom.

    Hybrid structuring
    Sukuk are called "hybrid" so, because they contain a mixture of debt (The structure of profit) and ownership equity, and this means structuring speculation.
    This is the structure that Saudi Arabia invests in savings bonds. With each issue, the proceeds are divided into two parts.
    The first is an amount equivalent to 33 percent of the issuance proceeds (i.e. profit capital), so that the Sukuk holders agent purchases goods that are in compliance with the Sharia by a commodity broker (known as supplier 1), and then this agent sells those goods to the Kingdom (with a clear profit margin) And between, so that Saudi Arabia pays for what it bought with the margin at a later time.
    This may help finance Sukuk payments (as well as profits, which will come from the Mudaraba contract projects revenue).
    As for the second component of the issuance proceeds (not exceeding 67% of the total face value of the issuance), and the next for the Sukuk holders agent (who plays the role of the owner of the money for the benefit of investors) goes to the Ministry of Finance, which is the speculator.
    Agreements related to the Mudaraba contract were signed between the Ministry of Finance and the Sukuk holders agent (the owner of the money), so that they would share a common ownership interest in the infrastructure projects portfolio (the investment portfolio), which the Kingdom would undertake (i.e. infrastructure projects) as it deems appropriate​.
    This is done on a profit-sharing basis, and the loss is charged in proportion to their share. The Kingdom has, according to the prospectus, the right to transfer investment funds for projects between what it deems appropriate from infrastructure projects (that is, the Kingdom can exchange portfolio assets with other assets).
    In order to protect the rights of investors, the infrastructure projects that will be targeted will be evaluated. The Kingdom has the right to purchase any asset from the investment portfolio, and if this were done, the funds and profits resulting from the sale will be reinvested in an infrastructure project.

    Economic Reports Unit​

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