Saudi Arabia's Almarai plans first perpetual bonds

Saudi Arabian food company Almarai plans to sell perpetual Islamic bonds, the first from an issuer in the kingdom, as Arabian Gulf companies seek to boost capital without selling shares.
Riyadh-based Almarai, which operates a joint venture with PepsiCo, said it will meet domestic investors in the next two weeks to privately place of 1.7 billion Saudi riyals of senior sukuk that do not mature. Perpetual debt can be treated as equity, thereby allowing companies to increase capital outside equity markets. Almarai's sale is set to be the first sukuk from the Gulf Cooperation Council since Saudi Binladin Group's 1bn riyal offering in July.
"The ability to raise cash without disturbing a company's share structure is a key benefit, the region's family-owned businesses may be looking at this," Rizwan Kanji, partner at King & Spalding LLP, said by phone. "We will see these become a bit more prevalent in the market."
Sales of perpetual bonds have gained momentum in the GCC since Abu Dhabi Islamic Bank sold the world's first dollar- denominated sukuk to boost its Tier-1 capital in November. Dubai Islamic Bank pursued a similar sale in March. Between 75 per cent and 90 per cent of Middle Eastern companies are owned and run by families, according to Dubai-based Tharawat Family Business Forum, an independent network of Arab family businesses.
Almarai, which sold 1.3bn riyals of five- and seven- year sukuk in March, is raising funds for a 15.7bn-riyal four-year investment program, the company said in a statement to the Saudi stock exchange. BNP Paribas, HSBC Saudi Arabia, Saudi Fransi Capital and Standard Chartered have been mandated as joint lead managers for the perpetual offering, the company said.
Islamic bonds sales in the region have dropped 39 per cent to $10.8bn this year compared with the year-earlier period, according to data compiled by Bloomberg.
"Borrowers could see an alternative instrument, while in an environment where nothing has come to market, it could open the door for more issuance," Mr Kanji said.
 
* Bloomberg News