Arkan raises sukuk sale to $1bn

Saudi property developer Dar al-Arkan has increased the size of its Islamic bond sale to $1 billion from $800 million due to strong demand, one of the sale's lead arrangers said on Tuesday.

In June, Dar al-Arkan said it was selling the five-year Islamic bonds, or sukuk, to finance residential construction projects in Saudi Arabia.

The real estate developer made presentations to investors in Europe, the Middle East and Asia and the issue was oversubscribed, Bahrain's Unicorn Investment Bank told Reuters.

In June, Unicorn said the sukuk were priced at 225 basis points over the three-month London Interbank Offered Rate. Dar al-Arkan said the bonds were structured as an ijara, or lease, agreement to comply with Islam's ban on interest.

Sukuk are typically backed by physical assets, from which returns are paid to bondholders instead of interest.

The 5-year issue is the second sukuk to be issued by Dar Al-Arkan. The developer raised $600 million by selling sukuk in February, marking the first sukuk to be issued by a Saudi company in the international capital markets.

"This second landmark transaction for Dar Al-Arkan represents a further important milestone in the development of the Islamic capital markets, and its success demonstrates the demand that exists globally for well-structured sharia-compliant investment opportunities," said Majid Al Sayed Bader Al-Refai, managing director and CEO of Unicorn Investment Bank

Sales of sukuk have surged as more large and conventional banks based outside the Middle East enter the market to gain exposure to booming Gulf economies, and as investors become more comfortable with what was once seen as an exotic instrument.

Other Gulf developers that have sold sukuk include Dubai's Nakheel and Abu Dhabi's Aldar Properties.

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