Saudi Arabia’s Kingdom Installment Company (KIC) announces that it has redeemed its maiden Sukuk issued in 2006, despite the exceptionally difficult circumstances in the international capital markets.
KSA MBS I International Sukuk was lead arranged by Unicorn Investment Bank, which also acted as Shari’ah Advisor and, along with Standard Bank Plc, Joint Bookrunner to the transaction. The Sukuk, which attracted investors from Europe, the Far East and the GCC, was credit enhanced by the International Finance Corporation (IFC), a member of the World Bank Group, and backed by real estate lease contracts developed by Dar Al-Arkan Real Estate Development Company (Dar Al-Arkan) based in Saudi Arabia. It was the first mortgage-backed Sukuk by a GCC corporate to be issued in the international capital markets. The purpose of the Sukuk was to leverage the company’s financing capabilities to provide home-buyers within the Kingdom with funds to purchase their homes in return for affordable monthly installments.
Mr. Hathloul Al Hathloul, General Manager of KIC, commented: “KIC, previously a funding unit of Dar Al Arkan, launched its credit business in 1998, providing more than 5,000 Saudis with the required funding to purchase housing units from Dar Al-Arkan through a leasing scheme. This established a solid foundation for KIC to become the first Saudi company to issue a mortgage-backed Sukuk in the international capital markets, thereby securing funds for home-buyers to purchase homes from a real estate development company through mortgage financing. The redemption of the Sukuk reflects both the strength of the Saudi economy in general, as well as that of the Kingdom’s real estate sector.”
Mr. Abdullatif Al Shalash, Managing Director of Dar Al-Arkan, commented: “The scarcity of credit mechanisms within the Saudi real estate market and its negative effect on the progress of planned real estate development provided Dar Al-Arkan the impetus to undertake revolutionary remedial steps, including the establishment of a specialised unit for funding home-buyers seeking to purchase homes built by Dar Al-Arkan. This unit was then transformed into an independent company, known as KIC, which has strived to support the development of integrated housing communities in the Kingdom by introducing housing finance for the first time in the market, while creating funding sources via the international capital markets. Our primary objective was to find innovative solutions for the escalating housing problem in the Kingdom caused by the lack of planned real estate development. KIC has since evolved into a larger company, Saudi Home Loan Company, which was established in 2007 with an initial capital of 2 billion Saudi Riyals, in partnership with Arab National Bank, Dar Al-Arkan and the IFC.”
Mr. Al Shalash added, “The successful redemption of full amount of the Sukuk by KIC attests to the company’s sound business model and focused strategy. We remain committed to the residential real estate sector in Saudi Arabia and confident about the growth prospects of the Saudi real estate market, which has not experienced the type of downturn seen in other international markets. Through our investments in this sector, we are enabling Saudi citizens to purchase homes at an early age and with affordable monthly installments, while ensuring that the Kingdom benefits from a real estate market that includes affordable and high quality housing solutions.”
Mr. Waleed Al Murshid, manager of the IFC in Saudi Arabia, commented: “The successful issuance and redemption of the KIC Sukuk points to a new source of credit beside banks. The IFC supports this solution as part of a general strategy to augment housing finance in the Saudi capital markets and drive the economic progress of the country.”
He added, “The Saudi government initiative to establish a company modeled after Fannie Mae in the United States and the enactment of real estate financing laws in the Kingdom represent a new drive for the Saudi real estate sector.”