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Wed 23 Jun 2010 01:03 PM

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Dar al-Arkan signs swap deal to lower sukuk costs

Saudi real estate firm signs deal to lower costs to cover 50% of $450m bond.

Dar al-Arkan signs swap deal to lower sukuk costs
SAUDI SUKUK: To lower the costs, Dar al-Arkan said it had signed a swap agreement, to cover 50 percent of the $450m sukuk. (Getty Images)

Dar al-Arkan, Saudi Arabia's biggest real estate developer by market value, has signed a profit rate swap agreement to lower the costs of Islamic bonds, or sukuk, worth $450 million.

In February, the firm sold the sukuk, priced at 10.75 percent, as part of efforts to fund its expansion, in the middle of a months-long freeze in Gulf Arab fixed-income markets which was sparked by Dubai's debt woes.

The developer had immediate refinancing needs with an earlier $600 million sukuk maturing in March and therefore could not postpone its February issuance. Many companies in the region have postponed issuances and have faced higher financing costs as a result.

To lower the costs, Dar al-Arkan said it had signed a swap agreement, compliant with Islamic law, to cover 50 percent of the sukuk, or $225 million, it said in a statement on the Saudi bourse website on Wednesday.

The developer did not say who the agreement was signed with.

As a result, the coupon profit rate would fall to 7.95 percent above 3-months SAIBOR, while total average financing cost for the company's borrowings for 2010 would fall to 5.02 percent, it said.

The five-year Islamic bond was the fourth issue from the developer. Bankers had said Dar wanted to raise at least $500 million and up to $750 million.

Dar wants to use proceeds from the latest sukuk to finance SR2.7 billion of capital expenditure during 2010, a prospectus for investors showed. (Reuters)

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