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Saudi airports expansion: GACA set for fresh sukuk

The General Authority of Civil Aviation will issue its second tranche of sukuk worth SR15 billion to finance expansion projects of King Abdulaziz International Airport (KAIA) in Jeddah and King Khalid International Airport (KKIA) in Riyadh.
“One of the major features of our sukuk is that it is fully guaranteed by the Saudi government through the Finance Ministry,” a GACA official said.
This is the authority’s second issue of Islamic sukuk after its successful SR15 billion debut issue in January 2012. He said the first issue was used to finance part of the SR27 billion KAIA expansion project.
The Saudi Arabian Monetary Agency has categorized GACA sukuk among bonds that have zero risk. SAMA plays an important role in organizing the issuance of GACA sukuk, he said.
The GACA official did not give details about the second issue but other sources estimated its value at SR15 billion.
GACA has reportedly picked three banks to organize the second tranche of sukuk.
GACA has chosen HSBC Holdings’ Saudi Arabian unit and the investment-banking arm of state-owned National Commercial Bank to manage the riyal-denominated transaction, banking sources said.
Saudi Arabia is investing heavily in infrastructure projects and revamping many of its airports to cater to growing passenger traffic.
Standard Chartered will also be involved in the transaction, having pitched jointly with NCB Capital, but will hold a more junior role than the other two banks. 
The GACA sukuk is expected to draw significant demand from Saudi investors especially because of government guarantee, one analyst said. Given that the Kingdom doesn’t issue sovereign debt, this is the closest that investors can get hold of government paper.
The last sukuk, a SR15 billion 10-year government-guaranteed deal priced in January 2012, was the country’s largest ever local currency bond and attracted orders from investors worth 3.5-times the final amount.
HSBC said it was happy to deal with the first tranche of GACA sukuk. “We are extremely proud and honored to be part of this historic transaction that is globally the largest single-tranche sukuk ever issued,” said Walid Khoury, CEO of HSBC Saudi Arabia.
Khoury added: ” Our dedicated team worked closely with the General Authority of Civil Aviation to meet all of their requirements and helped in setting another benchmark in sukuk issuance in the Kingdom.”
Fahad Al-Saif, director and head of debt capital markets at HSBC Saudi Arabia Limited, said the GACA sukuk issuance has conceptually set the new risk-free rate for the Saudi Arabian markets.
“We are always keen to help lead the development of Islamic financing industry and Saudi capital markets through innovative solutions.
This transaction stresses our integrated Islamic and innovative financing solutions capabilities which HSBC is committed to deliver in Saudi Arabia,” Al-Saif said about the first issue.
The KAIA project, which will increase the airport’s annual capacity to 30 million passengers, was scheduled to be completed by the end of 2014.
The KKIA project will increase its capacity to 35.5 million with the first phase costing SR1.26 billion. It will be ready by 2017.

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