LONDON, 31 January 2007 - The Saudi government is expected to introduce a mortgage law before the end of 2007, said Abdul Latif Al-Salash, CEO of Riyadh-based Dar Al-Arkan Real Estate Company, one of the largest realty developers in the Kingdom.
Sheikh Al-Salash was speaking at the third and final roadshow on Monday for the international debut of corporate Sukuk - a 3-year $425 million Sukuk Al-Ijara - issued on behalf of Dar Al-Arkan. The roadshow, held at the London headquarters of WestLB, one of the joint lead managers and bookrunners for the issuance, attracted many bankers and institutional investors.
The financial close for the offering is Feb. 15, 2007, and according to the five joint lead managers and bookrunners - Bahrain-based ABC Islamic Bank, Arab National Bank in Saudi Arabia, Standard Bank of South Africa (London Branch), Bahrain-based Unicorn Investment Bank, and WestLB of German (London Branch). The roadshows have been very successful with several investors showing interest in the issuance.
"Our Finance Minister Ibrahim Al-Assaf two weeks ago confirmed that a draft mortgage law is in place. We expect the law to be enacted sometime this year. The government has realized that its role in financing housing is limited and that the private sector should assume a greater role in this respect. Banks in Saudi Arabia are very keen to provide consumer housing financing. This law will pave the way for the mortgage industry in the Kingdom," explained Al-Salash to Arab News.
He also confirmed that the company is in the process of setting up a housing finance joint venture company in which Dar Al-Arkan will have a 15 percent stake; the International Finance Corporation (IFC), the private sector funding arm of the World Bank Group will have a five percent stake; Arab National Bank and Kingdom Installments Company (KIC) will share the remaining equity. This joint venture is set to become the first such housing finance company to be licensed by SAMA (the Saudi Arabian Monetary Agency).
Al-Salash agreed that housing financing is a very contentious issue in the Kingdom at present, but stressed that the government is keen to get the necessary legislations through in the course of 2007.
Dar Al-Arkan, established in 1994 by six private families in Saudi Arabia who own some 80 percent of the equity, is shifting its focus from being primarily a land developer to residential housing developer, which now accounts for 70 per cent of the company's activities. Going forward, Dar Al-Arkan intends to achieve a revenue mix of 50:50 from its land and residential project development.
According to the latest figures released by the company, it has an equity base of $2.67 billion and total assets of $2.9 billion. The company reported gross revenues of $904 million and net profit of $417 million for the nine months ending Sept. 30, 2006.
The housing market in the Kingdom is set for a major upturn. Market dynamics show that demand is outstripping supply. In fact, according to Dar Al-Arkan, in the middle income sector alone, a shortfall of 50,000 residential units is projected over the next few years. The baby boom in the 1970s and increasing migration of people from the villages to cities in the Kingdom has resulted in many of these people now becoming first home buyers.
The residential home development demographics in the Kingdom is also changing. In the past some 98 percent of housing was built by individuals and only 2 percent by developers. This trend is rapidly changing given the rising cost of development and building materials. Dar Al-Arkan is currently involved in 26 land development projects with a total of 7.2 million square meters. It also has 15 residential projects in progress comprising some 13,000 units in some 5.5 million square meters of built-up area. The aim is build a total of 65,000 residential units over the next 5 years.
Dar Al-Arkan also claims that it has refined its project execution process by building the infrastructure and superstructure at the same time thus shortening the project cycle and savings costs. The company has signed an agreement with top project management and financial planning consultants, Turner Construction, and a marketing and sales agreement with UK property advisers, Cluttons. The company is also in the process of setting up a joint venture with the Chinese State Construction & Engineering Corporation, China's largest construction company.
Al-Salash revealed that Dar Al-Arkan's Al Qasr project located in Al-Suwaidi suburb of Riyadh; and the "privacy enhanced" residential development, Riyadh View, one of the largest such projects in the Kingdom, are well on track. He confirmed that the company's long-term strategy is to diversify into the residential development market in Jeddah, Madinah, and the tri-city area of Dammam, Dhahran and Alkhobar in the Eastern Province.
Five blocks of the Al Qasr Project constitute the asset pool for the $425 million Sukuk issuance, which marks the first international Sukuk (Islamic bond) for a Saudi corporate. According to Tahir Naseem of Unicorn Investment Bank, the transaction is a true-scale securitization and is fully underwritten by the lead managers to the full value. There is direct recourse to Dar Al-Arkan Real Estate Development Company for the Sukuk profit and principal amount. The issuance has a tenure of three years, maturing in 2010, with a non-amortization feature and a bullet payment after 3 years. The Sukuk certificates are issued by DAAR International Sukuk Company, incorporated in Cayman Islands, on behalf of Dar Al-Arkan Real Estate Development Company, which is also the guarantor of the transaction.
