London, Asharq Al-Awsat- Petrochemical giant Saudi Basic Industries Corp (SABIC) said it will issue Islamic bonds of at least 1 billion riyals ($267 million) to help finance expansion projects.
“The first issue will take place in June or July at the latest. We want to test the market’s appetite”, SABIC’s vice-president for capital bonds Mutlaq al Morished said.
In the first phase, bonds will be open to banks, governmental and semi-governmental institutions, such as the public investment fund. The public will not be able to buy bonds, al Morished explained, because of a lack of a framework to organize the issue, similar to that of the stock market.
This will mark the first time a private Saudi company issues bonds. The establishment of the Saudi Capital Authority and the adoption of a number of policies to expand the capitals market in Saudi Arabia has encouraged private firms to issue Islamic bonds as an alternative to conventional bonds, in order to fund their projects.
According to senior sources, the Saudi Capital Authority is considering issuing an organizational statute for bonds before the end of the current year. The issuing of Islamic bonds in the local market will spread the growing financial liquidity and create another arena for investment, on top of the stock market.
The Saudi cabinet has already called on concerned government authorities to speed up the establishment of a secondary bonds market. This will lure investors and draw them towards various sectors of the economy.
Earlier this week, SABIC announced it had established a new company, SABIC SUKUK, which will offer services to the bond it intends to issue. It appointed HSBC and SABIC Bank as financial consultants.
Al Morished indicated that the revenue from the bonds will cover SABIC’s shares in the national petrochemicals company (Yansab) and Saudi Kyan. SABIC owns 55% of Yansab shares and 35% of the latter’s. Additional revenue will go towards financing other projects. SABIC is currently involved in the United States, Algeria, China, India and Mauritania. The price of the bonds will be determined by market demand, al Morished added.
The first bonds in Saudi Arabia were issued in 1988 when the Ministry of Finance adopted a program to issue bonds. It was later developed to assist the Saudi Monetary Agency.