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Sunday, 19 July 2009

Deal of the Week: Saudi Electricity sukuk issue

After several months of inaction, the Middle Eastern sukuk - or Islamic bond - market sprung back into action this week when Saudi Electricity Company (SEC) raised 7 billion Saudi Dollars, equal to US$ 1.9 billion.

The Kingdom’s dominant electricity supplier, advised by Allen & Overy, issued the first significant –and by far the largest – Middle East sukuk of 2009. SEC's sukuk raised more than twice as much as the next largest this year: The Kingdom of Bahrain's $750 million issue last month.

Sukuks differ from standard bonds because instead of paying interest, which is banned under Islamic law, they entitle investors to a share of future revenues. SEC’s sukuk is secured on the future fees the company will receive from signing up and then connecting new customers to its power grid.

Atif Hanif, the A&O associate who lead the deal, said the sukuk was a good prospect because Saudi Arabia has a rapidly growing population with strong demand for domestic electricity where SEC holds a state-authorised monopoly.

A&O, which has not previously advised SEC, secured the deal because Hanif had arranged the company’s previous sukuk in 2007 while at Baker & McKenzie. SEC had also worked with Zeyad Khoshaim, a partner at Abdulaziz AlGasim, A&O’s Saudi affiliate, who was at Baker & McKenzie with Hanif.

The pair co-ran this week’s SEC deal with assistance from associates Jonathan Marshall, Ahmed Al Bassam and partners Roger Wedderburn-Day, a sukuk specialist, and Julian Johansen, a Riyadh-based Arabic speaker.

Since Saudi regulations state that documents must be in Arabic but most investors wanted them in English, the lawyers had the added complexity of agreeing translations and definitions on top of the standard negotiations.

Khoshaim called the sukuk "a landmark deal for the Saudi market and a much needed boost for regional debt capital markets."

The sukuk was co-arranged by HSBC Saudi Arabia and Samba Capital, who were advised by White & Case’s Saudi affiliate, The Law Office of Mohammed Al-Sheikh.

Islamic finance links:
Islamic finance consulting and training (GlobalPro Consulting- Kuala Lumpur,Malaysia)
Islamic finance consultant and trainer (Ahmad Sanusi Husain-Kuala Lumpur,Malaysia)

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