Asset-backed sukuk move closer under proposed Tadawul reforms

Tadawul is laying the groundwork for a new generation of sukuk and debt instruments. Proposed amendments (pdf) published by the Saudi Exchange would create a dedicated framework for securitization and asset-backed debt issuances, expanding the market beyond traditional corporate debt. The draft rules are open for consultation until 14 June.

What’s changing? The proposals would separate the listing framework for debt instruments from equities, while introducing disclosure requirements tailored to securitized transactions. Issuers would need to identify key parties involved in the structure — including sponsors, originators, and trustees — and provide details on underlying assets, credit ratings, and credit enhancements.

Opening the door to asset-backed financing: The changes would allow issuances backed by specific assets, meaning investors would wholly assume the risk of the underlying asset pool rather than the issuing company, Bashar Al Natoor, Global Head of Islamic Finance at Fitch Ratings, told Al Arabiya (watch, runtime: 5:12). He added that the new instruments could diversify funding sources and provide companies with more flexible financing options, although they will require greater transparency and investor understanding due to their complexity.

And more oversight: The proposed rules would also expand Tadawul’s oversight of securitization transactions, including restrictions on originators selling asset-backed debt instruments during mandatory lock-up periods.

Who benefits? Al Natoor expects institutional investors to be the primary adopters initially, given the complexity of the instruments. Asset-backed sukuk could also attract strong demand from shariah-compliant investors because of their direct link to tangible assets. However, the amendment’s ultimate impact will depend on market uptake by issuers and investors, according to Al Natoor.

The move builds on a broader regulatory push to develop Saudi Arabia’s securitization market, including last year’s reforms to special purpose entities (SPEs) and the CMA embedding debt crowdfunding into the mainstream capital market.