Saudi Dar Al Arkan seen selling assets to cover debt

Dar Al Arkan, Saudi Arabia's largest property developer, said on Monday that it will not need to return to the debt markets to help repay a $1 billion sukuk maturing in 2012 but does not rule out having to make some asset sales.

Analysts fear it might have to raise new debt but the company, which had $293 million in cash at the end of the third quarter, says it is confident that it can generate sufficient cash to pay off the existing debt.

"From next year until the maturity of the debt in 2012 you will find more cash in our balance sheet," Dar Al Arkan's director general Saud al Gusaiyer said on Monday, adding that land sales were possible.

"The cash the company can create in 2011 and 2012 is enough to pay our debts, our expenses and capital expenditure. I will generate this cash from renting some assets and we expect to generate $80 million in 2011 and also selling houses and selling land," Al Gusaiyer said.

He added: "We are not planning to raise debt to pay our old debt. We are not even thinking about it."

Dar Al Arkan's 2012 sukuk last traded at 82 percent of par value, according to Thomson Reuters data, the price having fallen 7 percent last week, the fifth biggest loss amongst regional bonds after the company reported a 53 percent fall in third quarter net profit that triggered a cut by rating agency Moody's.

In February Dar Al Arkan raised $450 million from a sukuk issue that had a five year maturity and was priced at 10.75 percent just in time to refinance a $600 million sukuk maturing in March.

Bankers said Dar Al Arkan raised less than it had targeted after a lengthy road show.

Up to $100 billion in corporate debt needs to be refinanced in the Gulf Arab region in 2011, making it harder to refinance debt maturing afterwards.

At the same time Bahrain based investment house Arcapita needs to refinance a $1.1 billion debt maturing in April 2012, that has been trading at between 70 and 90 cents to the dollar.

"Maybe they have investments and other choices to liquidate, but for sure they will liquidate some kind of assets to pay back the sukuk," said Hisham Tuffaha, head of research at Saudi investment bank Bakheet Investment Group in Riyadh.

Dar Al Arkan has told investors it would go "the extra mile" to fulfil debt commitments, yet the shares have fallen 27 percent since July on concerns that it may have to make asset sales.

Some 80 percent of Dar Al Arkan's assets of about $6.13 billion are land plots in the kingdom where analysts say properties are hard to value.

"The company's policy of not disclosing the details of its land bank is in contrast to disclosure practices of regional peers, and is the key risk and concern of investors in our view," Ambereen Jiwani, an analyst at Bahrain-based Securities and Investment Company (SICO) said in a recent research note.

But Al Gusaiyer said that the real estate market in Saudi Arabia was strong and that Dar Al Arkan would not face any price pressures.

He said: "The market is good and we have assets that are needed by the market and we can liquidate them at a very good margin. So we are not facing any problems to create cash." (Reuters)