Saudi Electricity plans $1.9bn sukuk in May

Bond issue to be SEC's third after it raised $1.86bn last year and in 2007.
Saudi Electricity plans $1.9bn sukuk in May
By Souhail Karam
Sun 11 Apr 2010 09:20 PM

State controlled Saudi Electricity Co (SEC) is confident it would raise up to $1.87 billion from an Islamic bond next month to fund expansion, even without a government guarantee.

Saudi Electricity's chief executive, Ali Saleh al Barrak, said the issue would take place next month and is projected to be for a minimum amount of $1.33 billion.

Speaking to Reuters by telephone, Barrak said: "The amount that we plan to raise stands at between $1.33 billion and $1.86 billion but we have not fixed it yet, pending the exact identification of the needs."

The Saudi bourse regulator Capital Market Authority (CMA) had earlier approved the issue.

The sukuk issue will be Saudi Electricity's third after it raised $1.86 billion last year and a maiden issue for the same amount in 2007.

Barrak said the firm was keeping a close eye on its debenture levels.

He added: "The debt ratios are carefully studied. They are maintained within the internationally recommended limits".

He did not immediately provide precise figures.

Last month, Banque Saudi Fransi raised $650 million in a bond sale.

In February, homebuilder Dar al Arkan raised a lower than expected $450 million from a sukuk issue a few weeks after Saudi Hollandi Bank raised $193 million from its second sale of a sukuk under a private placement.

Regional debt markets are gradually improving after Dubai's government in March unveiled a $9.5 billion support plan for its conglomerate Dubai World which rattled markets in November with news it would ask for a stand still on some of its debt.

As a result, Gulf Arab fixed income markets remained largely shut for months, but are now slowly coming back to action with a series of issues led mainly by Saudi firms.

The lack of a government guarantee for some state owned Dubai World debt came as a shock to many investors.

Barrak does not expect the new sukuk issue to encounter any difficulties even if they were not guaranteed by the Saudi government, which directly controls 74.3 percent of the utility's capital.

He said: "Saudi Electricity is different. Its sukuk are for the financing of productive projects. Look at the power demand growth we have here. There is strong support by the government to the company but the government does not guarantee these sukuk."

Saudi power demand is growing at an annual rate of 8 percent.

SEC is executing projects to add 5,105 megawatts of new power capacity by 2012. The firm also plans to buy electricity from an independent consortium that is developing a power and desalination plant with an output capacity of 850 megawatts.

A sukuk is similar to a bond but complies with Islamic law, which prohibits the charging or payment of interest.

Global sukuk issuance is likely to range between $15 to 17 billion in 2010, down from $19 billion last year, a recent Reuters poll shows. (Reuters)

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