Saudi Electricity to sell sukuk for expansion

SAUDI ELECTRICITY: Gulf's largest utility firm by market value looking to issue as much as $5 riyals worth of sukuk bonds to help fund expansion. (Getty Images)

Saudi Electricity, the Gulf's largest utility firm by market value, will issue Islamic bonds that could be worth about 5 billion riyals ($1.33 billion) to help fund expansion, its top executive said on Sunday.

Bourse regulator, the Capital Market Authority (CMA), said earlier on Sunday that it has approved the issuance of the sukuk over the June 13-28 period. It did not elaborate.

The issue will be Saudi Electricity's second after it raised two years ago 5 billion riyals from its first Islamic bond, or sukuk.

"We have not fixed an amount yet for this one but we expect it to be close to the previous issue," Electricity's Chief Executive Ali al-Barrak told Reuters in a telephone interview.

The maturity of the new sukuk could be five years, he said.

The global credit crunch and the slowing of economies in key Islamic financial centres are putting pressure on the $1 trillion Islamic bond industry, its biggest test since it began 30 years ago.

The value of sukuk issued globally in 2008 has fallen more than 56 percent from 2007 to $14.9 billion, according to Standard & Poor's.

Barrak said that he believed there was an appetite for sukuk.

"People want these issues which provide reasonable returns and are guaranteed by a state controlled firm ... Those who bought into the first issue are happy with it," he said.

Investors had offered 7 billion riyals for Saudi Electricity's 2007 issue, in which the firm was seeking to raise 2.5 billion riyals.

Only institutional and individual investors resident in Saudi Arabia and with bank accounts in the kingdom were allowed to buy the five-year bonds.

Asked if Saudi Electricity could end up taking more than 5 billion riyals if investors offered a significantly higher amount, Barrak said: "We will not raise more than what we need".

The firm could look into more issues over the next few years. "This is the first issue in 2009. There may be more issues over the next few years".

The firm wants to tap the Islamic bond market to help finance rapid expansion aimed at meeting a domestic power demand that is rising by an annual 7 percent.

The firm is currently carrying out projects worth 75 billion riyals to be completed within three years, Barrak said.

Islamic bonds do not pay interest, which is banned as usury under Islamic law. Instead, sukuk issues offer investors a share of profits from approved investments. The sukuk is structured to resemble a floating rate note. (Reuters)

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