7th APRIL 2015 - Vol.XXXVIII No.018
Business News

Almarai picks banks for sukuk sale

DUBAI: Saudi Arabian dairy producer Almarai has chosen four banks to arrange the sale of a hybrid Islamic bond, or sukuk, banking sources said yesterday, in what would be a first for the kingdom's debt market.

The Gulf's largest dairy firm has mandated the investment banking arm of Banque Saudi Fransi, BNP Paribas, HSBC's Saudi Arabian unit and Standard Chartered to arrange the transaction, two bankers said.

The offering, which is not imminent, is likely to be denominated in Saudi riyals, although the company could opt to issue in dollars instead, four bankers said.

"Both dollars and local currency are on the table," said a Saudi-based banker who pitched for the deal but whose institution was not selected.

Hybrid structures are rare in the Gulf region, although two banks in the UAE have tested markets with hybrid sukuk since last year. Majid Al Futtaim, a UAE conglomerate, met investors in May ahead of a possible corporate hybrid bond but unfavourable market conditions stalled the sale. Hybrids are usually accounted for as subordinated debt on a firm's balance sheet, and contain some equity characteristics.

Almarai's chief financial officer Paul Louis Gay said in May it could opt to issue a hybrid Islamic bond in the next 12 months to help fund its ambitious growth plans, with a target amount of around $500 million.

Almarai announced in May 2012 it was targeting 15.7 billion riyals ($4.2bn) of capital spending over five years to fund its expansion.

This followed the acquisition in December 2011 of Argentine farm operator Fondomonte to secure supplies of animal feed.

However, Gay said in May it was looking to raise the cash from international investors, rather than the local debt market. There are positive and negatives with both currency options, the Saudi-based banker said.

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