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In a time where countless companies are preoccupied with rescheduling of their debts, Kingdom Installment Company (“KIC”), based in Riyadh, Kingdom of Saudi Arabia, surprised the international capital markets by redeeming its maiden Sukuk issued in 2006.

The Sukuk, attracting investors from Europe, Far East and Gulf countries, were credit enhanced by the International Funding Corporation (IFC), member of the World Bank Group, and backed by real estate lease contracts developed by Dar Al Arkan Real Estate Development Company (“Dar Al Arkan”) based in Saudi Arabia. The Sukuk was structured in line with the provisions of the Islamic Shari’ah and issued with the purpose of leveraging the company’s financing capabilities to provide home-buyers within the Kingdom with funds to purchase their homes in return for affordable monthly installments.

Mr. Hathloul Al Hathloul, General Manager of the KIC, stated that the company, previously a funding unit subsidiary of Dar Al Arkan, launched its credit business in 1998. It provided more than 5,000 Saudis with the required funding to purchase housing units from Dar Al Arkan through a leasing scheme. This laid down a solid foundation for KIC as the first Saudi company to issue Islamic Sukuk in the international capital markets and thus, securing funds for home-buyers to purchase homes from a real estate development company through mortgage financing.

Mr. Hathloul added that the Sukuk redemption by the KIC reflects both the strength of the Saudi economy in general, as well as, the Kingdom’s real estate sector. It further illustrates remarkable confidence in the Saudi market by a host of international investors.

Mr. Abdullatif Al Shalash, the Managing Director of Dar Al Arkan, commented that the scarcity of credit mechanisms within the Saudi real estate market and its negative effect on the progress of planned real estate development provided Dar Al Arkan an impetus to undertake revolutionary remedial steps which included the establishment of a specialized unit for funding home-buyers seeking to purchase homes built by Dar Al Arkan. This unit was then transformed into an independent company, known as KIC, which strived to support the development of integrated housing communities in the Kingdom by introducing housing finance for the first time in the market, while creating funding sources via the international capital markets. “The main objective was to find innovative solutions for the escalating housing problem in our country caused by the lack of planned real estate development”, stated Mr. Al Shalash.

Mr. Al Shalash went on to explain that KIC evolved into a larger housing finance company, known today as Saudi Home Loan Company (“SHL”). SHL was established in 2007 with an initial capital of 2 billion Saudi Riyals, in partnership with KIC, the Arab National Bank, Dar Al Arkan and the International Finance Corporation, the private sector arm of the World Bank Group.

Mr. Al Shalash explained that the success of KIC to repay the full amount of its Sukuk is proof of the group’s sound business model and its continued focus on the residential real estate sector in Saudi.. The management of the two companies remains confident about the Saudi real estate market which has not experienced the type of downturn seen in other international markets.

Investment in the Saudi real estate sector shall ensure the attainment of all stakeholder goals with minimal risk. In turn, it will enable the Saudis to purchase a suitable home, in an early age, with affordable monthly installment. The country, on the other hand, will enjoy a real estate market of affordable and quality housing products.

Mr. Waleed Al Murshid, the manager of International Financing Corporation (”IFC”), Saudi Arabia, points to the experiment of issuance, closing and redemption of the Sukuk as a new source of credit beside banks. He iterated the support of his corporation to this solution as part of a general strategy to augment housing finance in the Saudi capital markets and driving the economic progress of the country. He argued that the government initiative, announced by the Minister of Finance, to establish a company modeled after the American “Fannie Mae” company for purchasing loans from financial institutions, synchronizing with the enactment of real estate financing law in the Kingdom, is a new drive for this sector.

KIC has succeeded in 2006 as the first company in the Gulf region to issue an Islamic Sukuk backed by real estate mortgages and credit enhanced by the IFC.

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