Al Rajhi Sukuk: Everything You Need to Know About Islamic Sukuk in Saudi Arabia

Al Rajhi Sukuk are Islamic debt instruments issued by Al Rajhi Bank through an international program, classified as additional Tier 1 (AT1) capital sukuk. Islamic sukuk in general are financial tools that combine the features of conventional financing with Sharia compliance, representing participation in the ownership of real assets or projects, rather than providing interest-bearing loans as with traditional bonds. This type of sukuk enables the bank to strengthen its core capital and financial safety buffer, while attracting capital from investors seeking Sharia-compliant debt instruments. Al Rajhi Sukuk are particularly important as they represent a new direction for Saudi banks towards green and sustainable finance, supporting national development goals and Saudi Vision 2030.

The additional Tier 1 capital sukuk issued by Al Rajhi Bank are perpetual, meaning they have no fixed maturity date, but the bank may redeem or convert them to shares under certain financial conditions such as a capital decline. These sukuk are counted as part of the bank’s core capital, providing flexibility in strengthening its capital base. They typically offer a fixed annual yield (coupon rate) paid in US dollars, usually ranging between 5% and 6% depending on market conditions. Sukuk holders are entitled to periodic distributions, but these may be suspended if the bank faces capital pressures, making them riskier than conventional bonds or government sukuk.

In 2024, Al Rajhi Bank announced its first issuance of US dollar-denominated additional Tier 1 capital sukuk under its international program, with an original value of $750 million and total subscriptions exceeding $3.5 billion, reflecting investor confidence in the bank’s strength and financial position. On January 15, 2025, the bank completed a new issuance worth $1.5 billion, with final settlement scheduled for January 21, 2025. Geographical distribution data showed that 51% of investors came from the Middle East and North Africa, 31% from the Americas and Europe, 8% from Asia, and 9% from Saudi investors, confirming the international appeal of these sukuk. The coupon rate for these issuances was set in the 5-6% annual range in US dollars, with redemption possible after a specified period according to the issuance terms.

Al Rajhi Sukuk issuances align with Saudi Arabia’s national objectives for sustainable development and expanding Sharia-compliant financing sources. According to Al Rajhi Bank, proceeds from these sukuk are used to finance sustainable and socially impactful projects, such as green infrastructure and support for education, healthcare, and renewable energy sectors. This approach contributes to achieving the goals of Vision 2030, which focuses on investing in the green economy and encouraging the financial sector to innovate and expand Islamic debt instruments, thereby attracting foreign investment and improving the Kingdom’s credit ratings.

Al Rajhi’s AT1 sukuk are perpetual with no final maturity date and are callable after a specified period (typically five years). In cases of financial distress or if the bank’s capital falls below a certain threshold, the bank has the right to suspend or cancel profit distributions, and may convert part of the sukuk value into shares or partially write them off. This type of sukuk is considered higher risk compared to conventional sukuk or government bonds, but in return offers investors a higher annual yield while maintaining full Sharia compliance. Therefore, these financial instruments are suitable for experienced investors seeking to diversify their portfolios with fixed-income tools that carry calculated risks.

The fundamental difference between Al Rajhi Sukuk and conventional bonds lies in their Sharia structure and yield mechanism. Islamic sukuk are based on participation in the ownership of real assets or projects, while bonds typically pay fixed interest, which is not Sharia-compliant. Additionally, Al Rajhi AT1 sukuk are perpetual and do not require principal repayment at a set date, whereas bonds are usually term-limited. The ability to suspend distributions or convert sukuk into shares under certain circumstances distinguishes them from government or commercial sukuk, which carry lower risks and generally lower returns. Thus, Al Rajhi Sukuk offer a unique investment option in the Saudi and regional financial markets.

Al Rajhi Bank is one of the largest Saudi banks by capital and market value (ranging between SAR 400–500 billion during 2024–2025). The bank’s shares are traded on the Saudi Stock Exchange (Tadawul) under the symbol 1120, typically achieving a price-to-earnings (P/E) ratio between 15 and 20, with annual dividend yields close to 3–4%. The bank has recorded strong growth in revenues and net profits in recent years, enabling it to deliver stable dividends to shareholders. The new sukuk issuances further strengthen the bank’s financial position and enhance its ability to finance future expansions, particularly in infrastructure, energy, and education sectors, in line with Vision 2030.

The Saudi and international sukuk markets saw significant expansion during 2024–2025, with global issuances exceeding $75 billion. Saudi banks’ sukuk—especially additional capital sukuk—held a leading position in the market. Al Rajhi Sukuk represent one of the largest issuances of their kind in the region, demonstrating the ability of Saudi banks to attract foreign investment. These sukuk are among the innovative financial instruments that enable banks to improve regulatory capital ratios and broaden their investor base, especially amid growing global demand for Sharia-compliant financial products.

Despite Al Rajhi Bank’s leadership in issuing additional Tier 1 (AT1) sukuk, other Saudi banks have entered this sector strongly, such as Saudi National Bank (NCB), which issued Tier 2 (AT2) sukuk in 2023, and Riyad Bank, as well as major companies like STC. These institutions aim to diversify their funding sources and increase their appeal to international investors. Market analysis indicates that competition will intensify in the coming years, as banks and major companies seek to issue more sukuk, whether in dollars or riyals, to support national development projects and expand their local and global investor base.

Sustainable Al Rajhi Sukuk are part of the bank’s commitment to supporting environmental and social projects, with a portion of the proceeds allocated to initiatives that meet sustainability standards, such as developing green infrastructure, financing renewable energy, and supporting education and healthcare. An annual report is typically published detailing the environmental and social impact of projects funded by these sukuk, enhancing transparency and investor confidence. This approach aligns with global market trends that increasingly prioritize sustainable and socially responsible investment.

Al Rajhi Sukuk and the bank’s financial issuances often receive high credit ratings from agencies such as Fitch and Moody’s, for example, an “A” or “AA-” rating, reflecting the bank’s strong creditworthiness. These ratings are based on the bank’s robust financial position, profitability, and stability within the Saudi financial system. Credit ratings are a key factor for investors when assessing sukuk risks, especially perpetual AT1 sukuk that may be subject to suspended distributions or conversion to shares in rare cases.

In January 2025, Al Rajhi Bank announced the completion of an additional Tier 1 capital sukuk issuance worth $1.5 billion, following the January 2024 issuance of $750 million. These issuances reflect the bank’s successful strategy in diversifying funding sources and attracting international investors. The bank is expected to continue launching new issuances under its international sukuk program, with an increasing focus on financing sustainable projects. At the same time, other Saudi banks are preparing to enter the international sukuk market, signaling increased activity in this sector in the coming years, supported by the Saudi Capital Market Authority.

Sector forecasts indicate continued growth in the Saudi sukuk market, driven by rising demand from local and international financial institutions and investment funds. This trend is supported by regulatory backing from the Saudi Capital Market Authority, the Kingdom’s relative economic stability, and high credit ratings for major banks. With increasing appetite for Sharia-compliant debt instruments, Al Rajhi Sukuk are expected to remain among the preferred options for investors, especially as the bank focuses on financing projects with clear developmental and social impact.