|The Q&A was conducted with Nida Raza, senior vice president, Capital Markets, at Unicorn:
1. Why did you use this particular Islamic structure? What other structures were considered?
With the controversies surrounding the various structures by Islamic jurists, Unicorn Investment Bank’s structuring team came up with a unique Wakalah structure which enabled this to be a senior unsecured obligation of Dar Al-Arkan Real Estate Company (Daar) and rank pari passu with all current and future senior unsecured obligations of Daar. This structure is also unique in that it allows foreign investors to invest in the Saudi real estate business without contravening Saudi law which limits foreign ownership of Saudi properties. Moreover, this structure gives some flexibility, allowing Daar to use the proceeds to acquire future development projects as opposed to using its existing assets. Finally, in order to appeal to the widest audience, both Islamic and conventional, the structure had to be simple and easily understandable, which is what the ultimate Daar Sukuk II structure is.
2. What will this capital be used for?
To fund the guarantor’s (Daar) current and future development projects.
3. What were the challenges faced and how were they resolved?
a) This is the first bond/Sukuk transaction done out of the Middle East since the Dubai debacle. The transaction was priced in the most difficult week in 2010 with many other transactions failing to close or getting pulled from the market.
b) Daar was able to price the deal within the price guidance despite pricing it in one of the most volatile weeks this year, particularly for emerging market credit. Emerging market deals priced recently represented 7% of the YTD weekly average of US$6.5 billion with Daar being the ONLY emerging market deal priced globally across the credit spectrum.
c) Daar was prudent and disciplined to print a size that is reflective of its short/medium term funding need and avoided printing a bigger size deal at a wider price. The transaction was completed within the planned time frame and price guidance despite a difficult market backdrop.
d) The transaction is the first 144A deal from Saudi Arabia and is the first sub-investment grade Sukuk which demonstrates the strength of Daar’s operations, strategy and credit story.
4. Geographically speaking, where did the investors come from?
Daar’s book was significantly oversubscribed and attracted a diversified investor base from all over the world (Asia, the US, Middle East and Europe) that represented a wide spectrum of investor profiles.