State-owned utility firm Saudi Electricity Company (SEC) issued a US$1.75 billion Sukuk Ijarah on the 3rd April 2012. The landmark issuance, which was ten times oversubscribed with an orderbook of US$17.5 billion, marked several firsts for the Saudi Sukuk market; including representing the SEC’s first international Sukuk offering and the largest global Islamic bond sale in the Middle East.
The issuance also helped catapult Saudi Arabia past the UAE as the GCC’s largest issuer of Islamic bonds in the first quarter of this year, with Saudi issuers raising US$6.4 billion against the UAE’s US$1.9 billion.
Structuring and pricing
The Sukuk was offered in two tranches of US$500 million and US$1.25 billion, priced at 2.67% and 4.21%, respectively.
Strong demand for the Sukuk, driven by the shortage of US dollar-denominated Sukuk from Saudi state-owned corporates, allowed SEC to offer the second tranche at a longer maturity of 10 years, while the first tranche matures in five years.
The first tranche is equivalent to a spread of 140 basis points (bps) over midswaps, tighter than the 160 bps indicated earlier, while the 4.21% tranche represented a spread of 195 bps over midswaps, against an expected 210 bps.
Legal and Shariah advisors
Latham & Watkins and Allen & Overy were legal advisors for the transaction, while the Shariah advisors comprised HSBC Amanah’s central Shariah committee and the scholar Dr Hussein Hassan.
“SEC is a monopolistic, low-risk and regulated electricity generation, transmission and distribution business,” noted Fitch, adding that the firm has a dominant presence in the electricity generation segment in Saudi.
“However, rating concerns include execution risk related to the SEC’s large capital expenditure program, low capacity utilization rates in the electricity generation segment of the business, high electricity transmission losses, limited visibility in the current cost structure and lack of clarity around the process to settle future fuel costs with Saudi Aramco,” said the rating agency.
Nonetheless, it acknowledged that SEC’s liquidity is strong, with SAR25.9 billion (US$6.91 billion) in total liquidity at the end of 2011; including SAR7.3 billion (US$1.95 billion) in cash. “This compares well with around SAR8.1 billion (US$2.16 billion) in debt maturities in 2012, including SAR5 billion (US$1.33 billion) in Sukuk,” it said. — EB
SUMMARY OF TERMS & CONDITIONS
Saudi Electricity Company
3rd April 2012