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Islamic finance: Dar Al Arkan sukuk breaks Gulf drought

Dar Al Arkan’s sukuk could have hardly come at a better time for Saudi Arabia.

The debt troubles of the Saad and Al Gosaibi groups have alerted international banks to what has been seen as a relatively low level of corporate governance in Saudi Arabia.

But the issuance of a $450 million, five-year 144a sukuk by developer Dar Al Arkan would not have been possible if the firm did not comply with US-approved standards of accountancy and management. It was the first Saudi corporation to formally roadshow a bond in the US. The roadshow also went to Europe and Asia.

The sukuk has an annual profit margin of 10.75% payable twice a year. Bahrain-based investment bank Unicorn, Deutsche Bank, and Goldman Sachs managed the issue, which was in a dual ijarah and murabaha Islamic structure.

But for the Greek crisis, the issuer would probably have been able to increase the size of the sukuk, says a banker close to the deal. But most deals in the second week of February, when the sukuk was issued, were pulled from the market altogether. This included a proposed issue by Bahrain’s United Gulf Bank.

First of the year
This was the first Gulf debt issuance to be closed in 2010. Investors and borrowers alike have been scared by Dubai’s troubles after the emirate announced a possible debt standstill at the end of November.

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