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