Saudi utility firm plans sukuk issue

Saudi Electricity, the Gulf's largest utility by market value, said yesterday it might issue new Islamic bonds as it seeks funds to meet burgeoning power demand and cope with a global surge in contracting costs. The firm, which raised five billion riyals from the sale of its first Islamic bond (sukuk) around a year ago, will need to spend SAR26 billion (Dh25.4bn) on four planned power plants, it said in a statement on the Saudi bourse website. "These projects will be financed by company cash flows... in addition to other available financing means such as issuing sukuk and loans and taking advantage of facilities provided by international export banks," it said. It did not elaborate on the potential size of a sukuk issue. The four projects will add about four gigawatts to the state-controlled firm's power capacity, it added. "The global rise in equipment prices and the rise in local contracting costs has greatly affected the costs of Saudi Electricity's projects," it said. Investors offered seven billion riyals for Saudi Electricity's maiden sukuk issue in spite of the firm's fragile finances. The company was initially seeking to raise only SAR2.5bn in July last year. The bonds were priced at 45 basis points over the Saudi Interbank Offered Rate (Sibor), Hissam Kamal Hassan, director of Islamic finance in Saudi Arabia for lead arranger HSBC Holdings, said. Saudi Electricity plans to invest around SAR7bn a year of its own cash to increase generating capacity by 60 per cent by 2015 to meet demand for power, Chief Executive Ali Saleh Al Barrak said last year. Islamic bonds do not pay interest, which is banned as usury under Islamic law. Instead, sukuk issues offer investors a share of profits from approved investments. The sukuk is structured to resemble a floating rate note. Only institutional and individual investors resident in Saudi Arabia and with bank accounts were allowed to buy the bonds.