Leading Saudi Property Developer Dar Al Arkan Issues US$600m Benchmark Sukuk Boosted by its Inclusion in the MSCI Emerging Markets Index

Dar Al Arkan Real Estate Development Company, the largest publicly listed Saudi Arabian residential property developer, successfully closed its latest benchmark Sukuk offering – a 5-Year US$600 million Regulation S fixed rate benchmark senior unsecured Sukuk on 15 October 2019 and maturing on 15 February 2025. 

This latest US$600 million Sukuk was issued through Dar Al-Arkan Sukuk Company Ltd, incorporated in the Cayman Islands with limited liability and a wholly-owned subsidiary of the Obligor, Dar Al Arkan Real Estate Development Company, and comes under its US$2 billion Trust Certificate Issuance Programme. The Programme was established on 12 September 2019 and was arranged by Alkhair Capital (Dubai) Limited and Deutsche Bank.

Dar Al Arkan appointed Alkhair Capital, Deutsche Bank, Dubai Islamic Bank, Emirates NBD Capital, Goldman Sachs International, Noor Bank, Standard Chartered Bank and Warba Bank as joint lead managers and bookrunners to this latest issuance and arrangers of a series of investor meetings from 3 October 2019 in the Middle East, London, Singapore and Hong Kong.

The transaction was priced at a profit rate of 6.750% per annum payable semi-annually and the certificates were admitted to trading on Euronext Dublin’s regulated market with effect from 15 October 2019. The issuance was 2.5 times oversubscribed with the order book, according to a filing by Dar Al Arkan on Tadawul, reaching US$1.67 billion. The Certificates have been rated B1 by Moody’s Investors Service.

The proceeds of the sale of the Certificates (the Sukuk Proceeds) will be invested in a portfolio of investments comprising an Ijara Agreement and a Murabaha Agreement entered into between the Investment Manager and the relevant Restricted Subsidiaries of Dar Al-Arkan in accordance with the Investment Plan. The Investment Management Agreement provides that a minimum amount corresponding to 51 per cent. of the face amount of the Certificates outstanding must be invested in Ijara Agreements at all times, except during the period necessary for the replacement of any Ijara Agreement which is terminated as a result of the occurrence of a total loss.

The Investment Plan means the requirement for the Investment Manager: (i) to invest the Sukuk Proceeds into a portfolio of Sukuk Contracts which generates returns at least equal to each relevant Periodic Distribution Amount for a period which is equal to or greater than the remaining duration of the Certificates which are outstanding at the time of the relevant investment; and (ii) to ensure satisfaction of the Underlying Value Conditions.

Dar Al Arkaan is a regular issuer of Sukuk and user of Islamic finance facilities. In fact, in April this year the company successfully redeemed its US$400 million Sukuk listed on the Irish Stock Exchange and NASDAQ Dubai, which was issued in 2014 and due to mature on 28 May 2019 out of the company’s internal cash reserves.

According to Andy Raheja, CFO of Dar Al Arkan Real Estate Development Company, “Dar Al Arkan, is in an enviable liquidity position at present, with Cash and Cash equivalents near SR5 billion. We see our decision to pay down debt from cash reserves as a sign of confidence in our current strategy and belief in our ability to meet our commitments through operating cash flows. We are very proud of our relationship with global debt capital markets, and we expect our debt investors to see this redemption positively.”

Over the last decade, Dar Al Arkan has issued nine international Sukuk and post redemption of the 2019 Sukuk it will continue to have US$1 billion (SR3.75 billion) of Sukuk outstanding, divided equally over the 2022 and 2023 maturities.

In the meanwhile, Dar Al Arkan is one of 30 Saudi companies that have joined the MSCI Emerging Markets Index as part of Tadawul’s recent inclusion into this index.

According to Yousef Al-Shalash, Chairman of Dar Al Arkan Real Estate Development Company, “we congratulate the Saudi Stock Exchange Market on its successful inclusion into the MSCI EM Index. This reflects on the strength of the Saudi stock market which will now be classified among the leading global emerging markets allowing it to attract more investors in line with Vision 2030 and under the umbrella of the Financial Sector Development Program.  As Saudi Arabia’s largest real estate developer, Dar Al Arkan is already seeing the benefit of joining the MSCI EM index which has enhanced the visibility of Dar Al Arkan to investors around the world and is helping to broaden its shareholder base.”

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