Saudi Electricity Company (SEC) successfully auctioned a US$2.5 billion Sukuk Ijarah on the 2nd April, marking its largest Shariah compliant issuance thus far. As an international Sukuk offering, it is also the largest ever Rule 144A to date. The Sukuk are a standalone issuance comprising two separate series of certificates. Speaking to Islamic Finance
news, Jamie Durham, a partner at Allen & Overy, advisor to the deal, shared more details.
“This Sukuk was a standalone issuance that consisted of two separate series of certificates,” said Durham. Issued by the same SPV, one certificate was priced at US$1.5 billion with a maturity of 10 years (due to mature in 2024) at a coupon rate of 4%. The other was a US$1 billion certificate, carrying a longer tenor of 30 years (due to mature in 2044) at a higher coupon rate of 5.5%. Net proceeds from the issuance will be utilized to finance the SEC Group’s general corporate purposes, including capital expenditures.
“Similar to its previous issuances, the debentures were structured based on the principle of Ijarah. “The Ijarah structure was identified as being suitable for a Sukuk issuance carried out by SEC as it enabled SEC (which owns a significant amount of assets related to its power generation projects) to make use of these assets as the underlying for the sale and leasing elements of the Ijarah Sukuk.” Having established a precedent, the Ijarah structure appears to be most preferable approach for this particular issuance.
According to Durham, several challenges were encountered in the process of the Sukuk issuance. “The challenges involved ensuring that the Islamic structure was consistent with the business of SEC and its continued operations, and provided sufficient possibilities for further Sukuk issuance. For example, given the size of SEC’s power generating assets, one way in which this was addressed was for a percentage only of such assets to be used for each of the Sukuk series,” he explained.
SEC made two historical Sukuk deals in the first half of 2014. The first was a Saudi-denominated certificate worth SAR4.5 billion (US$1.19 billion), priced in January. The Sukuk Al Istithmar was Saudi Arabia’s first public Sukuk (see IFN Vol. 11 Issue 6). Subsequently, SEC issued this particular standalone issuance in earlier this month.
According to industry reports, SEC is the Gulf’s largest utility market by value. It was incorporated through the amalgamation of 10 local electricity firms across the kingdom. The company is 80% state-owned with a float of 20% on Tadawul. The utility company currently has 17 new projects lined up, worth approximately SAR7.24 billion (US$1.93 billion). — NA