PIF-backed Saudi Real Estate Refinance plans debut bond issue

The company aims to raise at least $500m early next year after it launches new 10bn riyal domestic market sukuk programme

Saudi Real Estate Refinance Company (SRC) will tap international debt markets for a debut $500 million dollar-denominated bond early next year, to fund the growth of its loan book, its chief executive said.

The company, founded three years ago to support a domestic market for home loans, will also tap the local sukuk market with a one-year, 10 billion riyals ($2.7 billion) guaranteed bond issue programme before its international foray, Fabrice Susini told The National.

“We will target around $500m for the first international issuance, probably not below. It could be a bit more. We'll see. It will depend … on the situation in the market at that time,” Mr Susini said.

SRC is also planning to enter into the structured finance market next year, either through a securitisation of some of its loan book or issuance of a covered bond as the company looks to diversify its funding sources.

SRC was co-founded by the kingdom’s Public Investment Fund and the Ministry of Housing in October 2017 to boost home ownership in the biggest Arab economy.

It does not lend directly to end-users, but provides liquidity to the home loans market by buying mortgages from banks and other lenders, freeing them up to extend more loans to the sector.

Mortgage take-up rates were low by international standards when the company was formed, with only about 150,000-170,000 issued for a country with more than 30 million inhabitants, Mr Susini said.

PIF provided 5bn riyals in initial funding, but the company has already tapped local sukuk markets on a couple of occasions following the issue of its 750 million riyals ($220m) debut Islamic bond in March last year.

SRC “probably underestimated” the amount of time it would take for its product to become established among banks and mortgage lenders, but since the second half of last year the market has witnessed “exponential growth”, Mr Susini said.

He cited mortgage lending figures by the Saudi Central Bank, which showed the kingdom’s residential loans market increased in value by 97bn riyals to about 312bn riyals by the end of the third quarter of 2020, from about 215bn riyals at the end December 2019.

“So already in nine months … you increase by 40 per cent the inventory,” he said.

For the past 12 months, new mortgage issues in the kingdom have fluctuated between 17,000-25,000 loans per month. The central bank’s most recent figure for September was 27,889 loans, which was a 66 per cent year-on-year increase.

SRC's balance sheet reflects the surge by the end of October, multiplying "more than three times our total balance sheet deployment," Mr Susini said.

About 2.1-2.2bn riyals was deployed at the end of 2019, and by the end of October this reached 6.5bn riyals.

Although much of its growth has been organic, SRC spent 3bn riyals in July buying a portfolio of mortgages from the kingdom’s Public Pensions Agency.

The deal showed that there are “more players” in the kingdom that have originated mortgages outside of the 11 main banks, Mr Susini said.

“We are agnostic as to who is originating these mortgages, as long as it complies with the regulations ... our objective is to facilitate the process for originators," he said.

“But the big driver ... the ultimate bearing we have in mind is the ultimate borrower, the Saudi citizen – making sure that they can get access to financing at the most competitive rate possible for a product that is best suited for their situation.”