Islamic Finance

Saudi developer plans debut sukuk for social housing

| 13 February, 2018
 Bernardo Vizcaino
Saudi developer plans debut sukuk for social housing
Photo: Buildings are seen from the top of Mount Al-Noor in the holy city of Mecca, Saudi Arabia January 16, 2016. Picture taken January 16, 2016. REUTERS/Amr Abdallah Dalsh

FEBRUARY 12, 2018 | 11:37PM EST | SYDNEY

Saudi developer Salman Abdullah Bin Saedan Real Estate Group is planning a debut issuance of Islamic bonds in the coming months, the first tranche of a $1 billion sukuk programme, according to the bank arranging the sale.

Sukuk are a common funding tool in the Gulf, used predominantly by Islamic banks, sovereigns and sovereign-linked firms, but issuance from private companies is seen as an important step to deepen the market.

Bahrain-based Ibdar Bank will set up the sukuk programme that would be listed on the Irish Stock Exchange with a possible listing on Nasdaq Dubai, said Ikbal Daredia, the bank’s Senior Executive Director Capital Markets and Treasury.

Proceeds from the sukuk would be used for Saedan’s social housing projects, which aim to address a shortage of affordable residential properties in Saudi Arabia.

The plans call for a benchmark-sized transaction before or after the holy month of Ramadan - which starts in May - subject to market conditions, said Daredia. A benchmark deal is usually upwards of $500 million.

The deal would also mark the first sukuk mandate for Ibdar Bank, formed in 2013 through a three-way merger of smaller Islamic lenders, as it expands its capital markets business.

“More and more companies are becoming institutionalized and will seek to tap the sukuk market,” said Daredia.

“A majority of sukuk issuers are sovereigns but our focus is to bring more corporates to the market. This can help develop the sukuk primary markets and also trading activity in the secondary markets.”

The lender aims to bring on board one or two international banks and regional partners as joint lead managers for the deal, he added.

Saudi Arabia issued a debut $9 billion international sukuk in April last year while starting sales of riyal-denominated sukuk in July.

Those sukuk are part of government plans to diversify its sources of finance and plug a budget deficit, but also provide a pricing benchmark that is encouraging some local companies to tap the market. (Reporting by Bernardo Vizcaino; Editing by Sunil Nair)

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