LONDON, 29 January 2007 — Saudi Arabia’s leading residential real estate developer, the Riyadh-based Dar Al-Arkan Real Estate Development Company (DAAR), launched a roadshow in London this morning for the debut of its 3-year $425 million Sukuk Al-Ijara.
The issuance marks the first international Sukuk (Islamic bond) for a Saudi corporate and yet again underlines the growing utilization and globalization of the Sukuk structure. In September 2006, Saudi Basic Industries Corporation (SABIC) issued the first Sukuk in the Kingdom, a SR3 billion domestic issuance confined to Saudi investors, following the adoption of a stand-alone Sukuk Law in Saudi Arabia.
The Daar and Sabic Sukuk, according to bankers in London, now pave the way for more corporate issuances as Saudi companies go to the financial markets to raise funds primarily for general corporate purposes including balance sheet requirements for expansion or working capital; or even for refinancing existing, perhaps more expensive, conventional debt. As such, leading City law firms involved in structuring Sukuk documentation such as Trowers & Hamlins, predict a huge growth in issuances in 2007 until 2008.
The issuances would apply both to quasi-utilities such as Saudi Aramco and Sabic; publicly-owned companies such as Dar Al-Arkan and privately-owned joint stock corporations. However, the Islamic capital market is still keenly awaiting the Kingdom’s first sovereign issuance.
According to Saudi banking sources, SAMA, in the wake of the Sukuk Law, is preparing to launch its first sovereign issue, most likely this year.
Dar Al-Arkan, like a growing number of Saudi companies, is not new to accessing Islamic financing. At end-May 2006, Samba Financial Group arranged an SR810 million Murabaha facility for the company to finance four phases of its Al-Qasser residential project in the Al-Siwaidi district in Riyadh, which includes the development of 256 villas, 3,000 residential apartments, 30,000 sq meters as offices, and 94,000 sq meters as commercial buildings.
Dar Al-Arkan , established in 1993 and assigned an A-rating by Capital Intelligence, is one of the largest residential real estate development companies in Saudi Arabia and the first to obtain the ISO 9001 certification. The company mandate is to provide affordable, international standard housing solutions to middle income families across the Kingdom. The company is currently involved in or planning over 20 residential developments throughout Saudi Arabia and targets approximately 65,000 residential units by 2009.
According to the company, Saudi Arabia in recent years has been witnessing a huge increase in its population — a growth of about 4 percent. In Riyadh alone, this growth has reached an astonishing 8 percent.
Dar Al-Arkan estimates that the housing market in the Kingdom is expected to increase by 2 percent in 5 years, from 4.34 million units in 2004 to 5.4 million units in 2010, servicing one of the youngest population demographies in the world. Some 55 percent of the Saudi population are under 20 years old.
Earlier in January 2007, Dar Al-Arkan mandated Bahrain-based ABC Islamic Bank (E.C.), Saudi-based Arab National Bank, the London branch of South Africa’s Standard Bank PLC, Bahrain-based Unicorn Investment Bank B.S.C. and the London Branch of Germany’s WestLB AG, who are the Joint Lead Managers, to arrange the landmark 3-year DAAR Sukuk on behalf of the company.