LONDON, 16 June 2007 - Another sign of the burgeoning corporate Sukuk (Islamic trust certificates) market in Saudi Arabia is the $650 million Sukuk Al-Manfa'a issued by the Alkhobar-based Saudi conglomerate, Saad Trading, Contracting and Financial Services Company (Saad Trading), whose core business is construction and real estate investments.
The issuance - lead-managed by BNP Paribas, Samba Financial Group and Arab Bank PLC - reached commercial close on May 15, 2007, but was announced yesterday in London and Dubai. It is the second largest corporate Sukuk originating from the Kingdom after the SR3 billion Sukuk issuance by Saudi Basic Industries Corp. (SABIC) in Sept. 2006. It also follows the $600 million Sukuk Al-Ijara issued by the Riyadh-based Dar Al-Arkan Real Estate Development Co., which closed in April 2007, and which was the first international Sukuk issued by a Saudi corporate.
According to Saudi banking sources, several Saudi corporations are preparing to enter the Islamic debt capital markets through Sukuk issuances. Saudi Aramco is widely tipped to rise financing in 2007 through its debut Sukuk issuance for a project involving Chevron.
The $650 million Sukuk Al-Manfa'a was issued through a special purpose vehicle (SPV), the Golden Belt 1 Sukuk Company B.S.C. domiciled in offshore Bahrain, and according to the issuer, Saad Trading will use the proceeds for general corporate purposes - balance sheet finance, expansion finance or refinancing existing debt. The pricing is quite competitive at 85 basis points (bps) or 0.85 percent per annum over the London Interbank Offered Rate (Libor). International rating agencies, Moody's Investors Service and Standard & Poor's, have respectively assigned Baa1 and BBB+ ratings to the Sukuk. The Saad Trading Sukuk certificates will also be listed on the Bahrain Stock Exchange.
According to City law firm, Norton Rose, which acted for BNP Paribas, one of the lead managers in the transaction, the Saad Sukuk "is a market-leading transaction which combines Islamic finance and debt capital markets expertise." The Sukuk Al-Manfa'a, a type of leasing Sukuk, is a sale-and-lease-back transaction, whereby Saad Trading sells certain assets to the SPV, the Golden Belt 1 Sukuk Company B.S.C, for a specific period, which in turn leases the assets back to Saad Trading. The rental income is used to pay Sukuk holders periodically.
Neil D. Miller, global head of Islamic finance at Norton Rose, confirmed to Arab News that the firm has known the Saad Group "for almost as long as we have been in the Middle East and ever since Norton Rose's key client BNP Paribas commenced its Islamic business in Bahrain. We have advised the bank on many of its Shariah-compliant transactions, enabling it and the other lead managers to complete this significant Sukuk transaction for an important regional business group and increasingly prominent global player. This transaction demonstrates the importance of long term relationships and our commitment to the region."