LONDON, 16 February 2004 — Construction of the Zam Zam Tower Complex on land adjacent to the Holy Mosque in Makkah is progressing according to plan by the developers, the Binladin Construction Group. The timeshare financing of the building and its future use, is a first for the Kingdom and the region.
Owners of a time-share will own the lease of an apartment, ranging from royal suite to studio for a period of one or two weeks for the next 24 years.
A studio apartment, in off peak season, for one week will cost $5,000 for the 24-year period, whereas the price for the same apartment increases to $22,000 if it is during the first three weeks of Ramadan; or to $80,000 if it is during the last ten days of Ramadan. The same formula applies for all the other categories.
The project has the support of the Saudi Council of Ministers and the Shoura Council. All contracts and agreements come under Saudi law and have been scrutinized by both Saudi and international law firms. The investment risk as such, say promoters, is mitigated by the support of the Saudi government.
The project is funded by Shariah-compliant finance based both on an Islamic bond — Sukuk Al-Ijara, which itself is a forward lease and on a Sukuk Al-Intifaa (a timeshare bond.) Bondholders may trade their Sukuks via the Internet on a global basis.
The above structure has attracted such interest from investors that the promoters are already planning to develop similar projects in Madinah and other regions in the Kingdom. The King Abdul Aziz Waqf for the two Holy Mosques owns the land adjacent to the Haramain. The Waqf has leased the land to the Binladin Group on a Build-Operate-Transfer agreement for 28 years. Under this agreement, the Binladin Group will build a shopping complex, four towers and a hotel.
The Binladin Group in turn has leased the Zam Zam Tower Project to the Kuwait-based Munshaat Real Estate Projects KSC. Munshaat will finance the construction of the project, operate it and then transfer it back to the Waqf at the end of the 28-year lease period.
To finance the development of the project, Munshaat in December 2003 issued a $390 million Sukuk, which, according to Munshaat CEO and Managing Director Meshal Al-Ameri was oversubscribed by 135 percent in the first two weeks. Munshaat is projecting an internal rate of return on the investment of 26 percent per annum.
The investors are big names in Saudi Arabia and the Gulf but did not market to the wider Muslim world. However, Munshaat are in contact with investors in Southeast Asia, for instance, regarding the other projects being mooted. To make the distribution of the units more equitable, MAS is selling the Sukuks Al-Intifaa on a quota basis for various Muslim countries.
Munshaat has also signed a management agreement with a five-star hotel group that will manage and run the hotel to international standards.
