Published — Wednesday 21 November 2012
Last update 21 November 2012 4:06 am
RIYADH: Saudi Arabia’s largest listed real estate developer, Dar Al-Arkan, plans to buy assets in Asia as part of its strategy to diversify revenue streams, its chairman Youssef Al-Shelash told Reuters.
Al-Shelash said the company owned just under 35 million square meters (8,650 acres) of land, and in the past it has relied heavily for revenue on sales of land within Saudi Arabia.
Its decision to branch out overseas illustrates how a growing number of Saudi companies, buoyed by the economic boom of the past two years, are looking to diversify abroad.
Outward flows of foreign direct investment from Saudi Arabia hit $ 3.4 billion last year, close to a record $ 3.9 billion recorded in 2010, according to the Arab Investment and Export Credit Guarantee Corp.
“We are targeting some geographical diversification. We have a concentration issue. Most of our assets are in Saudi so we would like to diversify outside Saudi Arabia through a long plan over five to seven years,” Al-Shelash said at the Reuters Middle East Investment Summit.
He said the company was targeting assets outside the Gulf and North Africa, “maybe in Turkey or Asia, Malaysia, Singapore, some stable countries,” and that it would look to buy existing buildings rather than develop new sites.
“We would like to get some stability in the company income,” he said, but said it would likely take five to seven years to generate 40 percent of revenue from rental income, a goal which he said last year would hopefully take three years.
Al-Shelash added the company was still finalyzing a more detailed strategy, which it hoped to have ready early next year.
Dar has enjoyed a dramatic recovery in its fortunes over the past two years, which to some degree mirrors the fortunes of the Saudi economy.
When Dar issued an Islamic bond or sukuk in 2010, investor demand was sluggish and the company had to settle for raising $450 million instead of its target of $ 500-700 million.
This year, however, its sukuk yields have dropped sharply and its share price has jumped 14 percent, far outperforming a 4 percent gain by Saudi Arabia’s main stock index — although the stock’s value is still less than a quarter of its 2007 peak.
Although Dar is not explicitly backed by the government, official action has convinced investors that authorities would like to see the company succeed.
Last October, the country’s Public Investment Fund approved a SR 4 billion ($ 1.1 billion) facility to finance one of Dar’s biggest projects, the Qasr Khozam development in Jeddah, estimated to cost SR 12 billion.
The company now has outstanding debt of around SR 4.4 billion, with sukuk of SR 750 million and SR 1.69 billion maturing in May 2014 and February 2015 respectively. It also has short-term murabaha Islamic loans with local and international banks, which it plans to roll over.
Dar, which posted third-quarter net income of SR 867 million, paid off a $ 1 billion sukuk in July this year after selling land.
Al-Shelash said the sukuk maturing in 2014 and 2015 could be paid off through company earnings without selling assets and would not be rolled over, adding that the company was waiting to see the impact of the US “fiscal cliff” on international debt markets before it would consider raising more money.
Al-Shelash said it was too soon to predict the impact of the mortgage law on the real estate sector, but that it was likely to increase prices as lenders eventually gained confidence in the regulatory system and more consumers gained access to financing.
“It will add new additional demand. It will also make the price...to be a little bit up,” he said. He added that he was not sure what the direct impact would be on Dar’s business.
Although the cabinet approved the law in July, details have yet to be made public by the central bank.
Analysts have said most housing demand in Saudi Arabia is among lower-income Saudis, while many developers have tended to focus on building more expensive properties which yield higher profits. Rising land prices mean it is sometimes more profitable for firms to simply trade land than to build low-cost houses.
Al-Shelash said a housing-loan company partly owned by Dar would likely focus on the upper-middle segment of the housing market.