Saudi's biggest builder has raised US$2.25bn in Islamic bonds over past five years
Saudi Arabia's largest listed real estate developer Dar al-Arkan aims for over 10 percent growth in profits next year and is comfortable financially after repaying most of its US$2.25bn of Islamic debt, its top executive told Reuters.
Dar al-Arkan has issued three international sukuk and one domestic sukuk over the past five years, raising a total of SAR8.4bn (US$2.25bn). On Saturday it announced it had transferred US$1bn to Deutsche Bank, the principal paying agent, to redeem a sukuk coming due this month.
"So far we have paid back SAR6bn. What remains is SAR2.4bn to be paid over the next three years," chairman Youssef al-Shelash said in an interview.
The firm tapped into its cash reserves and used proceeds from land sales to cover this month's redemption, and it will use the same method for its remaining maturities: SAR750m in 2014 and SAR1.7bn in 2015, he added.
"We had a cash position of SAR3.2bn by the end of the second quarter. After the sukuk repayment we have remaining cash of almost SAR100m. We also have receivables of almost SAR1bn for this year - almost half of it will be in the third quarter," Shelash said.
He also said Dar al-Arkan had no plan to issue a new sukuk this year. "I don't think so, we don't need it, thanks be to God... we are okay," he said when asked whether there were any plans to issue debt soon.
Last October the government's Public Investment Fund approved a SAR4bn facility to finance one of Dar al-Arkan's biggest projects, the Qasr Khozam development in Jeddah, which is estimated to cost 12 billion riyals.
Shelash said he expected profit growth for the remaining two quarters of this year to be at least 10 percent, and that earnings would rise further next year as the pressure of repaying debt subsided.
"The firm was under a lot of pressure to accumulate liquidity to pay back its debt and liquidity over the past 20 months was not reinvested... Now that we are done with the pressures to repay our debt, I hope we will achieve over 10 percent annual growth next year," he said.
Earlier this month, Dar al-Arkan said its second-quarter net profit rose 11 percent from a year earlier to 331 million riyals.
Dar al-Arkan has just under 35m sqm (8,640 acres) of land plots in Saudi Arabia. This provides it with a huge asset base but analysts say that because of the lack of a liquid, transparent real estate market in the country, properties are hard to value.
At the start of this month, Saudi Arabia passed a long-awaited mortgage law that is expected to encourage an expansion of home financing; with most of its population under the age of 30, the country faces a housing shortage. But high land prices and legal uncertainties mean there is unlikely to be any quick surge in home buying, analysts say.
"It will not affect this quarter or even this year - the implementation will take longer than this," Shelash said, adding that he hoped that the mortgage law might have an impact on next year's profits.
However, he said Dar al-Arkan saw opportunities in regulatory changes.
"We'll continue in the same business, same market, but we'll develop some other tools based on the new regulations, mortgage law, leasing law. So the new laws will require us to change part of our business model."