Dar Al-Arkan plans to buy foreign properties

Updated 21 November 2012
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Dar Al-Arkan plans to buy foreign properties

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.


World Bank shareholders approve $13 billion capital increase

Updated 22 April 2018
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World Bank shareholders approve $13 billion capital increase

  • Capital increase follows three years of negotiations
  • Increase of $7.5 billion for main institution and $5.5 billion for IFC

World Bank shareholders approved a “historic” increase in the bank’s lending capacity late on Saturday after the United States backed a reform package that curbs loans and charges more for higher income countries like China.
World Bank President Jim Yong Kim said neither China nor any middle income countries was happy about the prospect of paying more for loans, but they agreed because of the overall increase in funds available.
The agreement, which also increase shares and voting power to large emerging market countries like China, was “a tremendous vote of confidence” in the institution that came after three years of tough negotiations, Kim said.
“World Bank Group bureaucrats don’t often jump around and high-five and hug each other,” Kim told a small group of reporters following the Spring meeting.
He said the increase was needed because even with the end of the global financial crisis, the bank has been called on to provide funding to address a new series of challenges facing poor countries, like climate change, refugees, pandemics, “all new things for us.”
The increase provides an additional $13 billion in “paid in” capital: $7.5 billion to the main institution and $5.5 billion to the bank’s private financing arm, the International Finance Corporation.
Kim said the increase will allow the bank to ramp up lending to an average of $100 billion a year through 2030, from $60 billion in 2017 and an expected $80 billion in 2018.
Countries will have five years to provide the funds, but can ask for a three-year extension. The last increase occurred in 2010 and added $5 billion to the bank’s capital and $200 million for the IFC.
The United States, the institution’s biggest shareholder, rejected the World Bank request in October and the administration of US President Donald Trump has argued that multilateral lending institutions should graduate countries that have grown enough to finance their own development, like China.
But US Treasury Secretary Steven Mnuchin on Saturday said Washington supports the increase because of the reforms to lending rules.
“I look at this as a package transaction... we support a capital increase on the World Bank, along with the associated reforms that they’re talking about making,” Mnuchin told reporters.
The increase requires legislative approval, but Mnuchin said he was hopeful Congress would back the plan. Kim also said he has had contact with representatives from both parties and received strong support.
In a statement to the World Bank’s governing committee, Mnuchin applauded the plan to “significantly shift lending to poorer clients.”
While he did not mention China by name, Mnuchin applauded the shift to a “new income-based lending allocation target and the re-introduction of differentiated pricing” for loans — meaning wealthier countries would pay higher interest rates.
“The latter will incentivize better-off, more creditworthy borrowers to seek market financing to meet their needs for development,” he said.
Mnuchin said the new arrangement, including for the IFC, “frees resources for countries that don’t have sustainable access to private capital markets.”P
China’s Vice Finance Minister Zhu Guangyao said Beijing supported increasing World Bank resources but had reservations about the agreement for changes in lending policies.
“We are concerned about some of the policy commitments in the capital package, such as those on graduation, maturity premium increase for loans and differentiated loan pricing based on national income per capita,” he said in a statement.
“We hope that the management take different national circumstances into full account in the implementation of the graduation policies... to ensure that these policies will not impede cooperation between the (bank) and upper middle income countries.”
Kim acknowledged that lending to China would decline, but only gradually. That means “whatever borrowing they do has to be as impactful as possible.”
And he noted that because of the capital increase, “we will be able to maintain volumes for middle income countries as a whole.”
Zhu said the capital increase is “a concrete measure to support multilateralism” at a time when “anti-globalization sentiments, unilateralism, protectionism in trade” were creating uncertainties in the global economy.