The Saudi Basic Industries Corporation (Sabic), one of the world's top ten petrochemical manufacturers, launched its second Sukuk.
The Shariah-compliant Sukuk will be issued in denominations of SR10,000 and will be subject to a minimum holding of SR50,000). With the approval of the Saudi Capital Market Authority (CMA), besides Saudi Arabia, the Sukuk will be available to investors in the Gulf Cooperation Council (GCC) countries as well.
The Sukuk offering, made recently, is principally aimed at institutional investors, targeting banks and financial institutions, fund asset managers, and pension and insurance companies. Individuals are also eligible to purchase the Sukuk through either of the two joint lead managers. Sabic has mandated HSBC Saudi Arabia Limited and Riyad Bank as lead managers and book runners for the Sukuk issuance, which features a Sukuk structure approved by SABB Amanah's Shariah Supervisory Committee.
According to Asem AlBuolaya, a financial analyst based in Dhahran, Sukuk are essentially assets-backed securities. Unlike conventional structures, Sukuk are a form of commercial paper that provide an investor with ownership in an underlying asset. It is an asset-backed security, based on the balance sheet of the issuing company that has a stable income and Shariah-compatible trust certificates.
"The identification of suitable asset is the first and most important step in the process of issuing Sukuk certificates," he said.
AlBuolaya said that in the past five years the Sukuk market has seen a rapid surge in issuance across Asia and the Middle East. The Sukuk certificates for medium term investment totalled approximately $7 billion in 2004. By mid-2006, the amount grew to reach around $20 billion.
According to a Sabic spokesman the second Sukuk would contribute to the development of the vibrant capital markets in the Kingdom and complement the equity markets and benefit the wider economy of the Kingdom.
Sabic successfully launched its first Sukuk in July 2006. Then, the CMA gave approval to Sabic to launch a Sukuk of SR3 billion, the first in Saudi Arabia under the new Capital Market Law. HSBC Group was the lead manager and book runner for the pioneering issue. The 2006 SABIC Sukuk was the first to be approved by a Shariah Committee of a Saudi bank that was, then as now, the SABB Amanah Shariah Supervisory Committee.
The acquisition of the European arm of Huntsman Corporation by Sabic last year was an important milestone in Sabic's growth plans that the company has lined up, both domestically and internationally.
Sabic, in fact, has already embarked on major expansion programmes in Asia. It has opened five new offices in China, Indonesia, Australia and Vietnam and has set up six new warehouses in Asia Pacific including two in China.
In Sabic's home base, Saudi Arabia, the company's current and planned investments in capacity expansions are expected to reach approximately $20 billion in the next two years. With these expansions, Sabic's annual production of products will grow from 43 million tonnes to over 60 million tonnes by 2008.