Saudi Binladin Group recently issued a SAR1 billion (US$266.59 million) Sukuk Murabahah which was listed on the Tadawul via its SPV, SBG Sukuk. The issuance represents a phase of the company’s SAR12 billion (US$3.19 billion) program for the ongoing construction and development of the King Abdulaziz International Airport. Issued in Saudi riyals and backed by the commodities, the papers hold a short tenor of 364 days, due for maturity on the 9th July 2014.
Based on a well-known structure to its investors in the Saudi market, the Murabahah structure constructed did not come without its challenges. The key difficulty faced by the arrangers was to ensure that the certificates would have the benefit of a shared security with the SAR12 billion (US$3.19 billion) financing provided. This feature serves as a unique facet of the deal as it is fairly rare for a Saudi Arabian issuance to have an exclusive benefit of a shared security with the bank facility. The commitment of the bank facility in comparison to the size of Sukuk issuance was resolved through inter-creditor arrangements.
According to Stuart Ure, a partner at Clifford Chance, although the financing was readily procured, due to an upsize and a pre-approved draft inter-creditor arrangement, the papers needed to be commented on and negotiated to maintain adequate protection for the certificate holders. One of the arrangements to ensure the protection of the Sukukholders included sophisticated valuation mechanisms incorporated into the transaction documentation to ensure that the land cannot be sold at an undervalue. On the issuer’s side, the facility provides the Saudi Binladin Group with the flexibility of developing the prime land bank, to allow the group to develop and sell the land, which is the underlying asset of the Sukuk, throughout its lifetime.
In comparison to the SAR1.3 billion (US$346.57 million) Sukuk Al Ijarah due 2015 the company previously issued, the primary cashflows from the papers are derived from lease rental payments. Unlike classic Ijarah structures, this structure is quasi-asset-backed, with Sukukholders having recourse to both the credit of the company as well as a prime landmark located in Jeddah.
Payment for the Sukuk Murabahah is done through bank transfer and carries a return of 2.5% per annum. The lead managers and bookrunners are BNP Paribas Investment Company and Gulf International Bank Capital whilst the advisors are Walkers, Baker & McKenzie, Clifford Chance LLP and Al-Jadaan & Partners Law Firm. Governed by the laws of the Kingdom of Saudi Arabia, the Sukuk are in theory tradable but may suffer from lack of liquidity if traded. Nevertheless, the papers were indeed structured with comprehensive precision and creativity. — NA