Private contractor Saudi Binladin Group has raised 700 million riyals ($187 million) from the kingdom’s first short term Islamic bond, opening a new window for credit-hungry firms amid tight lending conditions.
In a statement on Saturday, the issue’s security agent, SABB – which is HSBC’s Saudi affiliate – did not disclose the maturity of the sukuk. It said the placement was private, offered to Saudi investors and issued through Saudi BinLadin Sukuk Co.
SABB said: “The sukuk issuance … was oversubscribed by more than 2.5 times … (and was) the first short-term issuance in Saudi Arabia; the first credit enhanced structure incorporating the sharing of assigned government contract payment and the first issuance to be issued on a zero coupon, discount to maturity basis.”
Government agencies, insurance companies, mutual funds and individual investors bought into the issue, Saudi Binladin said in the statement without giving a breakdown.
This was Saudi Binladin’s second sukuk issue since 2008 when it raised $266.6 million, also under a private placement.
After years of rapid credit growth, the profitability of most Saudi banks has been hit over the past four quarters by hefty provisions to counter exposure to troubled Saudi firms and a slowdown in lending.
Saudi lenders had a difficult year in 2009 with profitability eroded by a doubling of provisions for non performing loans to about $2.93 billion within a year as a rising number of Saudi and regional firms ran into financial problems.
SABB said: “Considering Saudi local market conditions and investors’ preferences, the development of commercial paper in Saudi will enable corporate short term funding requirements to diversify away from bank sources.”
It added: “(Saudi Binladin’s latest sukuk issue) is expected to prove to be an attractive alternate financing source to support local issuer requirements.”