Thursday 26 April 2018

Saudi Electricity to raise $1.8bn from sukuk issue

Riyadh, June 13, 2009

Saudi Electricity Company, the Gulf's largest utility by market value, on Saturday began a roadshow for its second Islamic bond issue which bankers expect will raise up to 7 billion riyals ($1.87 billion).

Bourse regulator the Capital Market Authority (CMA) said last week it had approved the issuance of the sukuk over the June 13-28 period. It did not elaborate.

Ali Al-Barrak, Electricity's chief executive, said in a Reuters interview last week the state-controlled firm would raise about 5 billion riyals from the issue.

The issue will be Electricity's second after it raised 7 billion riyals in 2007 from its maiden issue, having initially sought to raise only 2.5 billion riyals. The 2007 sukuk was priced at 45 basis points above the Saudi Interbank Offered Rate (Sibor).

Only institutional and individual investors resident in Saudi Arabia and with bank accounts in the kingdom were allowed to buy the five-year bonds.

Bankers, who have access to the issue's documents, said Electricity has applied to the CMA to raise a minimum of 3.5 billion riyals.

'They will go for more. They can go for up to 7 billion riyals,' one banker said, speaking on condition of anonymity.

The issue is expected to be priced above Electricity's first issue, mainly because of the turmoil that has affected credit markets globally.

'Things have improved greatly for them (Electricity). A couple of months back, Electricity was facing a three-digit pricing,' a second banker said.

Saudi Electricity was currently carrying out projects worth SR75 billion to be completed within three years, Barrak told Reuters last week.

The new five-year sukuk are set to be priced at between 50 and 99 basis points, the two bankers said.

The scarcity of quasi-sovereign debt instruments - that are either linked to the government or state run companies - is set to raise appetite for Electricity's sukuk.

'The Saudi government has not been issuing any debt recently and investors are anxious to diversify their exposure to establish some balance, especially amid this crisis,' one banker said.

The global credit crunch and slowing economies in key Islamic financial centres are putting pressure on the $1 trillion Islamic bond industry.

The value of sukuk issued globally in 2008 has fallen more than 56 percent from 2007 to $14.9 billion, according to Standard & Poor's.

'A sukuk by a Saudi state-controlled firm looks the best debt to buy now,' he added.

The roadshow's start coincides with the launch of a bonds market in Saudi Arabia which will help diversify financing sources for rated firms amid tight credit conditions.

Several Saudi firms are mulling the launch of sukuk, the bankers said. They include contracting firm Saudi Binladin Group and Abdul Latif Jameel Company, a family-owned conglomerate whose main business is the dealership of Toyota Motor Corp in Saudi Arabia.

Islamic bonds do not pay interest, which is banned as usury under Islamic law. Instead, sukuk issues offer investors a share of profits from approved investments. The sukuk is structured to resemble a floating rate note.-Reuters

Tags: sukuk | Saudi Electricity | raise | Islamic bond |

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