This Q&A was conducted with Law Office of Mohammed A Al Sheikh in association with White & Case:
1. Why was this particular Islamic structure used? What other structures were considered?
A number of structures had been considered but given the intended use of the proceeds from the offering by SHB, a Mudarabah structure was the most suitable to provide SHB with sufficient flexibility to fit its business model.
2. What will this capital be used for? (Only relevant if it’s a capital raising)
The proceeds will be used by SHB to strengthen its capital base which will comprise Tier II capital for Saudi Arabian regulatory purposes. It will also be used by the bank to grow its Islamic banking and finance activities.
3. What were the challenges faced and how were they resolved?
This was the second tranche of a SAR1.5 billion (US$400 million) issue [SHB had already issued SAR775 million (US$207 million) Mudarabah Certificates in December 2008 by way of private placement]. At the time, it was the first Sukuk in Saudi Arabia to qualify as bank regulatory capital. This was a challenging transaction involving complex legal and commercial issues, from both Shariah and bank regulatory capital compliance perspectives. To comply with the regulatory capital requirements, all payments by SHB to the certificate holders are to be subordinate in right of payment upon the occurrence of any winding up proceeding of SHB to the prior payment in full of all deposit liabilities and all other liabilities of the bank, subject to certain exceptions. The first tranche was named the “Equity Deal of the Year 2008” at the annual Islamic Finance news Awards.
4. Geographically speaking, where did the investors come from?
The investors were exclusively from Saudi Arabia.
5. Was this deal rated? If not, explain why
Due to timing and cost considerations, the deal has not been rated although the bank is rated. Nevertheless, the offering was several times oversubscribed. |