1. The Characteristics of the Saudi Fixed Income Market

2. 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. 17-2 © 2012 Cengage Learning. All Rights Reserved. May not scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

3. 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. © 2012 Cengage Learning. All Rights Reserved. May not scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 17-3

4. 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. 17-4 © 2012 Cengage Learning. All Rights Reserved. May not scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

5. 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. © 2012 Cengage Learning. All Rights Reserved. May not scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 17-5

6. 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. © 2012 Cengage Learning. All Rights Reserved. May not scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 17-6

7. 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 17-7 © 2012 Cengage Learning. All Rights Reserved. May not scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

8. 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 17-8 © 2012 Cengage Learning. All Rights Reserved. May not scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

9. The Internet Investments Online 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 17-9 © 2012 Cengage Learning. All Rights Reserved. May not scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.