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Saudi Retail Food Giant Savola Group Closes SR1bn Sukuk with an ‘Exchangeable Consideration’ in an Increasingly Difficult Consumer Market

Saudi Arabia’s Savola Group, one of the leading food retail and edible oil companies in the MENAT (Middle East, North Africa and Turkey) region, successfully closed its latest Sukuk offering in July – a SR1 billion (US$270 million) issuance.

The Sukuk, said Savola in a disclosure to Tadawul (the Saudi Stock Exchange), was issued under the company’s SR5.3 billion Sukuk Issuance Programme established in May 2019. This is the first Sukuk issuance under the Programme. 

In a statement, Savola stressed that the Sukuk was distributed by way of a private placement to qualified Saudi investors. The subscription period was set to close at the end of August 2019 but due to a good response from investors the transaction closed a month earlier. The 7-year Sukuk was priced at a return of 6 months SIBOR (Saudi Interbank Offered Rate) + 160 basis points and was oversubscribed 1.6 times.

The transaction was lead managed by HSBC Saudi Arabia, including the redemption process and the participation of the holders of the Redeemed Sukuk in the Issuance (the exchange).

The transaction comprises an exchangeable consideration relating to the intention of the company “to offer the first issuance under its Sukuk programme in exchange for monetary consideration or in exchange of all or some of the Sukuk issued on 22 January 2013 as deemed appropriate by the Company.”

“It should be noted,” explained Savola in the disclosure to Tadawul, “that the value of this Issuance has been paid through monetary consideration of SR493 million representing 49.3% of the value of the Issuance. The remaining value of the Issuance has been paid through exchanging the Sukuk of the Issuance with a part of the Previous Sukuk, as follows:

– A number of 507 Sak of the Previous Sukuk has been redeemed and exchanged on 9 July 2019 and its trading was suspended on such date (Redeemed Sukuk), for a value of SR (1) one million for each Sak (the nominal amount for the Sak) with a total amount of SR507 million for all the Redeemed Sukuk, which represents 33.8 per cent of the aggregate nominal amount of the of the Previous Sukuk; and

– As a result of the above, the aggregate nominal amount of the Previous Sukuk has decreased from SR1,500,000,000 to SR993,000,000.”

The proceeds from the Sukuk will be used to finance the Group’s balance sheet and expansion activities. Savola has been a regular user of Islamic financing facilities over the years, including Sukuk issuances and syndicated Murabaha facilities. In particular, the 2013 Sukuk referred to above was the company’s debut issue – a 7-year SR1.5 billion issuance which was priced at a return of SIBOR (Saudi Interbank Offered Rate) + 110 basis points. That issuance was oversubscribed to the tune of SR4 billion and was also distributed through a private placement to qualified Saudi investors.

Savola and other consumer goods companies in Saudi Arabia are suffering from the effects of subsidy cuts, the introduction of VAT sales tax and an exodus of expatriates, which have all put pressure on consumer spending.

Savola reported total revenues for first quarter 2019 of SR5,387.9 million, a 5.5% increase on the SR5,108 million revenues in the corresponding quarter in 2018. Similarly, the company reported increased total profits for the same period of SR1,065.5 million in Q1 2019 compared with SR908.5 million in Q1 2018. But after tax and zakat, net profit totalled SR6.3 million in Q1 2019 compared with a loss of SR84.3 million in Q1 2018

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