The growth in Islamic finance has slowed with the deepening credit crunch but the Saudi Binladin Group has raised the first sukuk for the world’s most holy boom town: Mecca.
The assets of the Jeddah-based Binladin Group are backing the five-year Islamic bond, worth a riyal equivalent of $267 million. The proceeds will go towards the construction of a five-star hotel in Mecca, the most holy city in Islam.
This is also the first sukuk to be issued by a Saudi family office.
"One of the goals of the Saudi Binladin Group is to support the capital markets of Saudi Arabia and to develop the growth of Islamic finance," said Yahya Mohammed Binladin, the company’s chairman and chief executive, in comments published by HSBC, the sole lead manager and bookrunner of the facility.
Up to now, the Binladin Group, like many other Saudi firms, has relied on bank loans. But the family, which is thought to have more than 600 members, has some massive real estate developments under way. Like other family firms in Saudi Arabia, it is looking to diversify its funding sources, and this deal "substantially broadens the company’s investor base", according to the chairman and CEO.
"Even if they can still get funding at the moment, some of the big private companies in Saudi Arabia are hitting their borrowing limits with the banks. They’re realizing they will have to start thinking outside the box," says Mohammad Al Jadaan, one of the lawyers who structured the bond.
Even compared with other companies in the secretive world of Saudi family businesses, the Binladin Group is notoriously opaque. It is not listed, and this sukuk was not rated.
Despite that, the sukuk, which pays a fixed-rate coupon of 7%, was entirely distributed within Saudi Arabia – at a time when the Saudi stock market has been in free fall, along with capital markets around the world.
"Saudi Binladin is regarded as a blue-chip company in Saudi Arabia, which is why the sukuk had a life of its own, despite the difficult market environment," says Rajiv Shukla, HSBC’s new, Riyadh-based, head of debt capital markets for the Middle East and north Africa. Most investors were institutional, including high-net-worth individuals, Shukla says.
The Saudi Binladin Group is reputedly one of the largest construction companies in the Islamic world. It has been central to the redevelopment of Mecca and Medina, Islam’s most holy cities.
Mecca and Medina’s building booms continue. And with a virtually guaranteed stream of pilgrim visitors, the two holy cities might seem a particularly secure place to invest in Saudi real estate.
Binladin Group has a 50% stake in a venture that is flattening a mountain called Jabal Omar, directly opposite the western entrance of Mecca’s Haram Sharif, the largest mosque in the world. The replacement for the mountain will be a complex of hotels, apartments, parking lots, and shops. The group’s other projects include a $4 billion riyal equivalent university, and a big role in the development of a new city near the Saudi border with Yemen.