Almarai concerned about rising commodity prices

Saudi Arabia’s Almarai Co. is concerned about rising commodity prices, but the Gulf’s largest dairy producer remains confident about weathering the challenges. The prices of some key soft commodities have increased sharply in the past few months, crimping margins for several Saudi companies as the kingdom caps the selling prices of some food products in a bid to keep inflation at bay. “If it continues it poses a challenge to all the food companies not only Almarai, we’re keeping a very close eye on it, we’re watching it almost on a daily basis,” Abdul rahman Al Fadley, Almarai’s chief executive officer, said in a recent interview in Riyadh. Crops such as corn and soybean comprise nearly one-third of the direct material costs of Almarai, analysts at NCB Capital said in a report this week, noting that the rise in prices of these commodities will start to impact margins in 2013. But Almarai expects the Saudi authorities to take a more favourable view on food prices if the cost of raw materials continues to rise. “I’m sure once it is confirmed that what we’re talking about is a new [price] level, a decision will be taken and supported by all,” Al Fadley said. For the world’s largest oil exporter, a mostly desert country that imports the bulk of its food needs, keeping food prices under control is a key policy objective. Almarai in July reported an 8.7 per cent rise in second-quarter net profit to 379.5 million Saudi riyals ($99.7 million) as sales increased across all its business sectors, and notably in bakery and poultry products. The company’s earnings were also boosted by the consolidation of International Dairy and Juice Ltd’s results for the first time, after Almarai earlier this year raised its stake in the company-a joint venture with PepsiCo Inc to 52 per cent from 48 per cent. Analysts reckon this consolidation will be the primary driver of a rise in revenues for Almarai in the second half of this year.

The company’s earnings are also expected to be boosted by the expansion of its poultry business. Almarai in 2009 completed a 949.5 million Saudi riyal (Dh929.4 million) cash-and-stock acquisition of Hail Agricultural Development Co., or Hadco. With 4-5 billion Saudi riyals in capex planned for poultry, it is a key business for Almarai with it contributing an expected 16 per cent of sales by 2016 versus 4 per cent in 2011, NCB Capital noted.

Egypt Repo

Egypt’s central bank lowered its offering of seven-day repurchase agreements by 13 per cent from last week as treasury yields retreat amid improving prospects for economic recovery. Dollar bonds decline. The North African country will make available 7 billion pounds of the repos (Dh4.2 billion, $1.15 billion), the second fewest this year, allowing holders of government securities to sell them back to access funds temporarily at 9.75 per cent, according to central bank data on Bloomberg. Pressure on bank funding has eased and government debt yields fell after the election of President Mohammad Mursi in June. Since then, the country has restarted loan talks with the International Monetary Fund and secured aid and investment pledges from Qatar and China. Foreign reserves climbed $705 million last month, the most in three years, to $15.1 billion after losing more than half of their value over 18 months amid the unrest.

The government’s three-year borrowing cost dropped 35 basis points, or 0.35 of a percentage point, at an auction yesterday to 15.85 per cent. That’s the lowest in almost nine months. The yield on the 5.75 per cent dollar bonds due in 2020 advanced one basis point to 5.29 per cent at 11:08am in Cairo, according to prices compiled by Bloomberg. That’s near the lowest level since January 2011. The pound, subject to a managed float, was little changed at 6.0874 a dollar.

Sabana

Sabana Shari’ah Compliant Industrial Real Estate Investment Trust, the world’s biggest REIT complying with Islamic principles, sold Singapore’s first convertible sukuk after its shares reached a record high. Sabana, which invests in high-technology office space, issued 80 million Singapore dollars (Dh238.5 million, $64.7 million) of five-year notes at a yield of 4.5 per cent on September 6. The sukuk is the second this year in the city-state, taking total offerings for 2012 to S$180 million, compared with 49.5 billion ringgit (Dh58.82 billion, $16 billion) in Malaysia. The debt can be swapped for Sabana stock at a target price of S$1.19, an 11 per cent premium to the close on September 6, according to a statement that day. Sabana is the third company worldwide to sell exchangeable sukuk after Khazanah Nasional Bhd, Malaysia’s sovereign-wealth fund, was first with an issue in 2006 followed Emaar Properties in January 2011. Singapore’s central bank has been working with businesses, lenders and law firms to boost interest in the $1.3 trillion global Islamic market since introducing equal tax laws for Sharia notes in 2006.