KSA- SABIC prefers Islamic finance for fundings

Arab News : For a corporate whose global footprint spans the US, Brazil, Argentina, the UK, Europe, the Middle East, South Africa, India, Malaysia, Singapore, Indonesia, the Philippines, China, Japan and Australia, the Saudi Basic Industries Corporation (SABIC) is perhaps, surprisingly to some, a major proponent of the use of Islamic finance in its financing mix.

However, Mutlaq Al-Morished, chief finance officer and senior vice-president, corporate finance, at SABIC, is sanguine about this. Speaking in London a few days ago, the corporate, he stressed, wants to help develop the Islamic debt and capital markets in Saudi Arabia and the region and is keen to continue promoting the use of Islamic finance as a diversification tool for SABIC's source of funding requirements for its massive operational and global acquisition plans.

According to Al-Morished, SABIC raised some $6.155 billion of Islamic financing in the midst of the global credit crunch, which started in September 2007. Shariah-compliant debt at the end of 2007 accounted for 23 percent of SABIC's total debt of $21 billion - a mouth-watering prospect for the Islamic debt and capital market in the Kingdom if not the GCC, especially given the fact that SABIC has publicly stated that it wishes to increase its Islamic debt and financing portfolio. Similarly, the corporate believes that an increasing component of project, corporate and asset financing in GCC countries will be done under a Shariah-compliant basis over the next few years.

In the last year or so, SABIC went to the market with its second Sukuk for $2.1 billion; a third Sukuk for $1.3 billion which was rated A+ by Standard & Poor's, the international rating agency; two Murabaha (cost-plus financing) facilities - a $400 million facility for GAS and an $855 million facility for Ibn Zahar; and a $1.5 billion Islamic tranche for the $6 billion financing facility for Saudi Kayan - the largest ever single project finance facility in history.

SABIC, which has a market capitalization of $112 billion, also raised $9.2 billion from the conventional debt market for the acquisition of the US giant, GE Plastics; and raised an additional $1.8 billion through an initial public offering (IPO) for Saudi Kayan and another $4.5 billion of conventional project financing for Saudi Kayan.

Before this in 2006, SABIC raised a facility for YANSAB and launched its debut domestic Sukuk issuance for $800m. According to Al-Morished, SABIC has issued 75 percent of the Sukuk issuances in the Kingdom aggregating $4.3 billion in size.

Al-Morished confirmed that the world's largest petrochemical company in terms of value of assets and revenues, is committed to the Islamic finance industry, and plans to go back to the market in the future to raise funds as and when the need demands. The SABIC-I and SABIC-II Sukuk issuances were both domestic issuances, but in future the corporate may well raise funds in the global markets with an international Sukuk issuance.

SABIC, like others, is keen to see greater Shariah compliance standardization in Sukuk structures, and a much more developed and established legal and regulatory framework for Islamic capital markets instruments in general.

"Through the issuance of Sukuk, SABIC is tapping a very significant investor appetite for an alternative non-equity fixed-income instrument, which can be traded or held till maturity. SABIC remains committed to develop the Kingdom's financial and capital markets and to actively promote Islamic finance," added Al-Morished.

The SABIC Sukuk issuances have achieved several milestones. The First Sukuk was the first of its kind to be approved by Saudi Shariah advisories for distribution in the Kingdom, and the first to be issued under the Capital markets Authority in 2006.

It was also the first Sukuk to be cleared and settled through the Tadawul Stock Exchange. Globally, the Sukuk was also the first of its kind. The issuance was also the first rated Sukuk in the Kingdom.

The future of Sukuk issuance in the GCC is very bright, both within the Islamic World and beyond, according to Al-Morished. Infrastructure projects in the GCC alone are estimated in excess of $1.6 trillion over the next few decades. As such issuers - such as SABIC, Dar Al-Arkan Real Estate Development Company (DAAR), the National Gas Cooling Company (TABREED), Dubai Ports - are looking to Sukuk and Shariah-compliant instruments to tap 'cash-rich' Islamic financing oriented investors.

Globally too the Sukuk market is set for a rapid growth to exceed an estimated $100 billion by the end of this decade and SABIC will continue to promote Islamic financing instruments in its debt portfolio.