Ahmed Salem Bugshan (ASB) Group is preparing to raise up to $100 million through the issuance of sukuk. Ground work for the biggest sale of Islamic bonds in Saudi Arabia has already been done.
The tenure of the sukuk will be five years. ASB Group is seeking the money to fund expansion of its existing projects including a mega-steel plant and a real estate project on the Corniche.
Among banks that are being considered for underwriting the sukuk is International Investment Bank Bahrain (IIB Bahrain) in which ASB Group has a majority share, said Mohamed H. Zakaria, senior vice president of the group. Other leading financial institutions are also likely to be part of the issuance.
The issuance would represent one of the first Shariah-compliant sukuk offerings in the Kingdom for a 100 percent Saudi company. ASB Group, according to Zakaria, is among the top 10 Saudi conglomerates with assets in excess of SR4 billion. It is diversifying its financing needs in accordance with the principles of the Islamic Shariah, he said.
The ASB sukuk is being structured as lease-to-own Shariah-compliant securities with a five year-term maturing in 2016 and offering a semi-annual return on the sukuk of 125 basis points over US dollar 6 months LIBOR.
"Though, to the best of our knowledge, regulators in the Gulf Cooperation Council countries do not insist on the rating for sukuk, and it is not a legislative requirement as well, we would like to go for the rating. It may take months, and a lot of work, but we would like to provide maximum confidence and security to the investors, who took a hit due to the confusion that prevailed prior to the Nakheel sukuk repayments," said Zakaria, referring to the Dubai government-backed company that was at the center of the recent financial crisis in the Gulf emirate.
Among the rating agencies that the ASB Group intends to approach are Fitch and Standard and Poor, he said.
Zakaria noted that regional investors' faith in sukuk was surprisingly intact despite the economic upheavals of the recent past including that of Dubai. He, however, observed "that investors have grown more cautious. The coming days would see them paying more attention to details such as structure and documentation and also an insistence on rating."
Zakarai said unlike most companies that raise money to finance their brand new projects with no history, ASB Group operations have been around for over 50 years, backed by solid tangible assets, international brand names and a leading market share in the industry they operate.
He noted that more Saudi corporate entities are switching their financing needs to Shariah-compliant Islamic Murabaha financing as a substitute system beside the conventional banking system.
According to Zakaria, Saudi Arabia was better placed today than ever before to make Islamic banking industry in the region and the world robust enough to offer a viable alternative to the conventional banking, compatible with the global financial sector, providing innovative Shariah-compliant products and services so as to achieve equitable economic growth.
"It is high time that corporate Saudi Arabia stands together to develop a progressive and sound Islamic banking system and offer its unconditional support to make the Kingdom the global hub of Islamic banking," Zakaria added.
By SHAHEEN NAZAR
© Arab News 2010
