The Q&A was conducted with Latham & Watkins:
1. Why did you use this particular Islamic structure? What other structures were considered?
The structure follows the same structure as used in the July 2009 Sukuk Issuance by Saudi Electricity Company (“SEC”). The transaction involves the transfer by SEC of a portfolio of assets to a custodian, Sukuk Electricity Company, a wholly-owned subsidiary of SEC. The asset portfolio comprises rights to provide service connections and the entitlement to levy and receive a one-time charge for each connection. No other structures were considered as the portfolio of assets is valued at a total of SAR14 billion (US$3.7 billion), therefore the two sukuk issuances in 2009 and 2010 were intended to use the same underlying assets.
The Sukuk is issued on an unsecured and unsubordinated basis. Sukuk holders are entitled to a quarterly periodic distribution amount and can put the Sukuk to the issuer after seven, 10, 15 and 20 years and also following an event of default. If the issue is exercised after seven years, Sukuk holders are entitled to 100% of the face value of the Sukuk (the sum of a purchase price of 90% of the nominal value of the Sukuk plus an extra amount of up to 10% of the nominal amount). The payable purchase price reduces to 60% in 2020, 30% in 2025 and zero at expiry.
2. What will this capital be used for? (Only relevant if it’s a capital raising)
The net proceeds of the issue of the Sukuk, after deduction of the combined management and selling commission, will be used by the Issuer for general corporate purposes including meeting working capital requirements, refinancing existing financial obligations and capital expenditure and the making of other investments.
3. What were the challenges faced and how were they resolved?
Given that this was a repeat transaction there were no substantive issues faced other than market conditions. However, given SEC’s standing in the market and the rating of ‘AA-’ by Fitch the market responded very positively and the issuance was several times oversubscribed.
4. Geographically speaking, where did the investors come from?
Public issuance in Saudi Arabia. Primary distribution was limited to Saudi Arabia. |