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Arkan to Issue Five-year Benchmark Sukuk

DUBAI — Dar Al Arkan Real Estate Development Co., Saudi Arabia’s biggest property company by market value, may issue a five-year fixed-rate Islamic bond, said a banker with knowledge of the sale.

The so-called benchmark-size sukuk may be priced to yield in the 10 per cent area, said the banker, who declined to be identified before the transaction is complete. A benchmark offering is usually $500 million or more.

Riyadh-based Dar Al Arkan and other companies are building residential developments as demand for property in the kingdom increases. Saudi Arabia plans to develop 8,143 housing units in 16 cities and governorates around the country, state-owned Saudi Press Agency reported in December. Dar Al Arkan said in October it will build a 7.5 billion-riyal ($2 billion) residential project in Jeddah on the Red Sea coast.

Dar Al Arkan’s Islamic bond may be the first international issue from the Gulf region since state-controlled Dubai World roiled global markets in November by announcing plans to delay debt payments. Dubai Electricity & Water Authority said in January that it postponed the sale of a $1.5 billion bond to the second quarter as yields remained unattractive.

Dar Al Arkan plans to sell Islamic bonds to refinance $600 million debt, two bankers with knowledge of the sale said on Jan. 21. The company has a BB- rating, three notches below investment grade, from Standard & Poor’s, and Moody’s gave it a provisional Ba2, two levels below investment grade.

The bond with a return “above 10 per cent will be well received,” said Mohieddine Kronfol, a managing director at fund manager Algebra Capital Ltd. in Dubai. It is “an important benchmark for private companies relying on their own business models rather than implicit government support to access financial markets,” he said.

Goldman Sachs Group Inc., Deutsche Bank AG and Unicorn Investment Bank BSC are managing the transaction, said the two bankers last month, who declined to be identified before the deal
is complete.

Dar Al Arkan must repay a $600 million three-year floating- rate note in March, according to data compiled by Bloomberg.—