The Islamic finance deal of the year 2023
Jabal Omar Development Company’s SAR5.3 billion ($1.4 billion) debt conversion.
Success in real estate is all about location, location, location. And in early 2020, just before the Covid-19 pandemic hit, there wasn’t a better location for Jabal Omar Development Company’s (JODC) flagship project than two million square metres close to the Grand Mosque of Mecca.
The new mixed-use complex would help the Kingdom of Saudi Arabia accommodate the fast-growing number of Hajj pilgrims from around the world. The pandemic quickly changed the narrative. As one of the largest publicly listed real-estate companies in Saudi Arabia, the plunge in JODC’s stock led losses in the broader Tadawul index.
During the travel restrictions, visitors from 20 key nations including the US, UK, India, Germany and France were unable to visit Saudi Arabia. The shuttering of the Hajj economy hit JODC particularly hard.
In the first quarter of 2021, the developer’s net losses were SR345.3 million ($92 million). By May 2021, it was warning shareholders of bigger financial charges as there had been no development activities during the period.
Enter SNB Capital, which advised JODC on executing a first-of-its-kind debt-to-equity conversion. As part of the restructuring, JODC struck an agreement with one of its core debt holders, Alinma Makkah Real Estate Fund, to convert SR5.3 billion ($1.4 billion) of debt into new shares. JODC then issued just over 225 million new shares to repay all debts owed to Alinma and settle all rights and obligations related to the fund.
The unlocked cash allowed [JODC's] team to 'allocate it to more productive, value-enhancing use'
In August 2022, chief executive Khalid Al Amoudi explained that the unlocked cash allowed his team to “allocate it to more productive, value-enhancing use. We have turned a critical corner and are on an accelerated journey towards our next phase of growth.”
That is good news for Saudi Arabia’s finance ministry, which has designated JODC’s development projects as having strategic importance to the broader economy. In March 2021, the ministry guaranteed SR1.6 billion in financing for JODC.
SNB Capital ran the debt conversion process. The team, led by chief executive Rashed Sharif, guided JODC through the agreement process, paving the way to settle all obligations and liabilities owed to Alinma. SNB Capital also arranged for the fund to surrender all claims to JODC assets in exchange for new company shares for development unit holders.
Three international hotel chains have interests in this resolution: Hilton Suites, Hyatt Regency and Conrad. The deal could act as a blueprint for resolving similar situations elsewhere in the Islamic world.