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Saudi Electricity to raise $1.87b through sukuk sale
Saudi Electricity Co, the state- controlled power producer, may raise as much as $1.87 billion (Dh6.86 billion) in the largest sale of Islamic bonds this year as the market for Sharia-compliant debt shows signs of revival.
- Bloomberg
- Published: 23:07 June 21, 2009
Dubai: Saudi Electricity Co, the state- controlled power producer, may raise as much as $1.87 billion (Dh6.86 billion) in the largest sale of Islamic bonds this year as the market for Sharia-compliant debt shows signs of revival.
The producer got regulatory approval from the Capital Market Authority to sell the five-year Islamic bonds, also known as sukuk, from June 13 to June 28. Companies in the Arab world's largest economy are seeking other ways to finance projects as the global crisis prompts private-sector banks to tighten lending.
Saudi Arabia, which has the largest bourse in the Middle East, started an electronic market for bond trading this month as part of its efforts to broaden sources of financing.
"This issue could be very well received, given the fact that there is ample liquidity with banks and the market is looking for safe investment," said John Sfakianakis, the chief economist at Saudi British Bank, in an interview from Riyadh. Saudi companies are taking the lead in reviving the sukuk bond market after sales plunged last year as tumbling crude oil prices sapped demand from the Middle East, falling to $13.9 billion from a record $31 billion in 2007. Sales have reached $6.6 billion so far this year.
"The Saudi market has a large appetite for corporate issuance," said Dan Azzi, a managing director and head of fixed-income trading at Standard Chartered Bank in Dubai.
"We wouldn't be surprised to see the Saudi Electricity bond deal to be oversubscribed with tight valuations. We would, therefore, assess the probability to be high that they'll meet their seven billion riyals target."
Dar Al Arkan Real Estate Development Co, Saudi Arabia's biggest developer by market value, raised 750 million riyals by issuing sukuk in May.
Jabal Omar Development Co, a real-estate developer in Saudi Arabia's holy city of Makkah, got shareholder approval on Saturday to sell Islamic bonds.
The sale will be Saudi Electricity's second after it raised five billion riyals two years ago from its first sukuk, which paid 45 basis points over Saudi interbank rates. A basis point is 0.01 percentage point.
The five-year bond, which is expected to be rated AA- by Fitch rating service, may pay between 90 basis points to 100 basis points over Saudi interbank rates, Nish Popat, head of fixed income at ING in Dubai, said.
"They have a limit to issue up to seven billion riyals," he said. "Because of the strong backing from the Saudi government, I expect demand is going to be high."
Institutional and individual investors based in Saudi Arabia and with bank accounts in the kingdom are allowed to buy the five-year bonds.
Islamic bonds comply with Sharia by using asset returns to pay investors instead of interest.
The spread above the London interbank offered, or Libor, on corporate and government sukuk has narrowed to 7.6 percentage points from an all-time high of 12.3 percentage points in February, according to HSBC-Nasdaq Dubai indexes.
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