Dar Al Arkan Real Estate Development Co's Islamic bonds are surging to the highest level since 2007 as the second-biggest Saudi developer by market value improved its ability to repay debt by more than doubling cash holdings.
The price on the Riyadh-based company's dollar-denominated floating-rate sukuk due in July has gained 5.8 per cent this year to 96.66 cents on the dollar yesterday, according to data compiled by Bloomberg. That outpaced the 0.8 per cent gain in the Dow Jones Citigroup Sukuk Index, which tracks global Islamic bonds.
Dar Al Arkan's bonds are rallying as investors bet the company will benefit from government investment plans valued at more than $500 billion (Dh1,836 billion) to build homes, develop infrastructure and create jobs. The company is selling land to boost cash holdings as it prepares to repay about five billion riyals (Dh4.8 billion) of debt this year, Chief Financial Officer Andy Raheja said in an interview on February 15.
"Dar Al Arkan will be able to meet its upcoming sukuk obligation this year considering its healthy cash balance and the ongoing land sales," Abdullah Alawi, head of research at Jeddah, Saudi Arabia-based Aljazira Capital, said in an e-mailed response to questions. "The company should naturally benefit from the expansionary fiscal policy of the kingdom."
The real estate company's cash and near-cash items climbed to 2.5 billion riyals at the end of 2011 from 1.2 billion riyals a year earlier, data compiled by Bloomberg show. Its debt minus cash holdings declined 25 per cent to 4.9 billion riyals. Dar Al Arkan has a 400 million- riyal loan due in the second quarter and may have a capital expenditure of about 250 million riyals, according to Raheja.
The developer received four billion riyals from the kingdom's Public Investment Fund for its Qasr Khozam development project, a venture with Jeddah municipality-owned Urban Regeneration Co. It plans to seek another two billion riyals from lenders for the six billion riyal project. The company signed a 15-year lease with Al Othaim Real Estate Investment and Development, Al Riyadh reported this month, citing Chairman Yousuf Al Shalash.
Saudi Arabia's King Abdullah Bin Abdul Aziz announced a $130 billion plan in 2011 to build homes and create jobs.
The rulings added to a commitment in 2010 to spend $384 billion over five years on housing, transport and education.
Islamic bonds returned one per cent this year globally, according to the HSBC/Nasdaq Dubai US Dollar Sukuk Index.