Islamic Finance  Halal Industry 

Saudi’s Almarai delays debut dollar bond on Khashoggi fallout - sources

| 27 November, 2018
 Davide Barbuscia
Saudi’s Almarai delays debut dollar bond on Khashoggi fallout - sources
FILE PHOTO: A worker stands near trucks with advertisements of Beyti juice and Almarai dairy products at a new factory at Nubaria city in El-Beheira Governorate, east of Cairo, Egypt, March 12, 2016. REUTERS/Ehab Farouk

Saudi Arabian dairy company Almarai has postponed a sale of international Islamic bonds because it faced having to pay a higher interest rate after the murder of Saudi journalist Jamal Khashoggi, banking sources familiar with the matter said.

The Gulf’s biggest dairy company had hired banks to arrange the issue, but the deal, which would have marked Almarai's debut in international debt markets, has been delayed to next year, the sources said.

Almarai did not respond to a request for comment.

Worsening conditions across emerging markets have led several issuers to delay debt-raising plans in recent weeks.

Almarai, which was aiming to sell the Islamic bonds, or sukuk, this year, has postponed the deal because it would have had to pay a premium to reflect the general market volatility and, more particularly, Saudi Arabia's higher borrowing costs in the wake of Khashoggi's murder, the sources said.

The company was planning to issue a benchmark bond, which generally means upwards of $500 million, sources told Reuters last month.

Saudi Arabia’s bonds have underperformed the Gulf market since the beginning of October, when Khashoggi was killed inside the Saudi consulate in Istanbul, showing his murder has damaged investor sentiment toward the kingdom.

Yields on Saudi’s $3 billion paper due in 2023 have risen 50 basis points since the killing, compared with a rise of only 21 basis points for Qatar’s comparative bonds.

Almarai’s sukuk yields would have reflected this, especially as investors would have used Saudi paper as a reference to price the bonds in the absence of existing Almarai dollar notes.

Khashoggi was killed in an operation that Turkey has said was ordered at the highest level of Saudi leadership, prompting the kingdom's biggest political crisis in a generation.

After numerous contradictory explanations, Riyadh has said Khashoggi was killed and his body dismembered after negotiations to persuade him to return to Saudi Arabia failed.

Over the past few weeks, Almarai has considered alternative ways to raise finance, including a privately placed bond, but that plan was canceled, said the sources.

Almarai had hired banks including JP Morgan, HSBC, Standard Chartered and First Abu Dhabi Bank to arrange the dollar bonds, sources previously told Reuters.

The mandates are still valid despite the delay and the deal is expected to resurface in the first quarter of next year, one of sources said.

(Editing by Mark Potter)

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