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Wed 31 Dec 2008 12:19 AM

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Saudi Hollandi completes $207mn sukuk sale

Islamic bond issue has ten-year maturity, priced at 200bps above Saudi interbank rate. 

Saudi Hollandi Bank said on Tuesday it has completed an Islamic bond issue worth 775 million riyals ($206.7 million) and would seek to raise another 725 million riyals to boost its capital.

The sukuk, or Islamic bond, sold through private placements, had a 10-year maturity and was priced at 200 basis points (bps) above the Saudi Interbank Offered Rate, which stood at 3.1925 percent for one-year maturities on Tuesday, the bank said in a statement posted on the bourse website.

Analysts said the 200 bps premium appeared to be competitive for the issuer.

"By going private, Hollandi opted for the right placement. Given the market conditions it is a good deal, its very good. It's very expensive for investors and very cheap for issuer," a Bahrain-based analyst said on condition of anonymity.

"It will encourage more issues from the Saudi market," he said noting that the Hollandi issue was more competitive than credit default swaps of the same tenor.

Bond sales have almost dried up in the second half of this year as the global credit squeeze raised borrowing costs, prompting many Gulf borrowers to shelve sukuk sales as banks become more reluctant to lend.

Over the past three months, the Saudi central bank has reduced benchmark lending rates by more than half and directly pumped liquidity in the banking system to ease a liquidity strain which is also affecting other Gulf Arab countries.

Hollandi's bond issue is the first tranche of a $1.5 billion issue that was approved by the bank's shareholders to "support its capital in a sharia-compliant manner," Hollandi said.

"The decision to support the bank's capital is aimed to help Saudi Hollandi achieve its plans to... achieve higher returns for shareholders," Chairman Mubarak Al-Khafrah was quoted as saying in the statement.

Investors will have an option to call the bond at the end of its fifth year of maturity and the return will be distributed bi-annually, it added.

A consortium led by Royal Bank of Scotland and comprising Spain's Banco Santander and Belgian Fortis became Hollandi's largest shareholder after it bought Dutch bank ABN Amro last year.

Islamic bonds replace coupons with payouts backed by tangible assets. Islam prohibits the receipt of interest and requires transactions to be linked to assets, thus deterring the kind of complexities prevalent in conventional financing. (Reuters)

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