New bonds to fund airport projects

31/12/2012 07:52 AST

Bond issues offer an attractive way for investors to take part in the Kingdom's successful infrastructure story, say analysts.

Their comments follow Finance Minister Ibrahim Al-Assaf announcement that Saudi Arabia would issue bonds next year, backed by the Finance Ministry, to fund construction work at airports in Riyadh and Jeddah.

"The rest of the bonds for King Abdulaziz Airport in Jeddah and King Khaled Airport in Riyadh will be issued this (coming) year," Reuters quoted Al-Assaf as saying.

Commenting on the bonds program, Jarmo T. Kotilaine, a regional analyst, said: "In the absence of regular government issuance, this is a very logical and attractive way of channeling funds into government-backed projects. These are clearly strategically important ventures, very likely to generate an appealing revenue stream."

He said: "From the perspective of the development or Saudi Arabia's bond/sukuk market, these issues will serve as something of a benchmark. From the investor perspective, they offer a way of taking part in the Kingdom's attractive infrastructure story."

The General Authority for Civil Aviation (GACA) said in January it planned to issue a second sukuk at the end of 2012 to help fund its SR 27 billion airport in Jeddah.

According to Reuters, a first sukuk, launched earlier this year and fully guaranteed by the Ministry of Finance, raised SR 15 billion to help fund the Jeddah airport development.

Basil Al-Ghalayini, CEO of BMG Financial Group, said: "The statement by the Minister of Finance for future issuance of government's backed sukuk is a healthy sign for the Saudi capital market as we need further supply of fixed income instruments."

He said: "Obviously, these sukuk have sovereign ratings which make them attractive to local institutional investors but more so to international institutional investors."

Asim Bukhtiar, vice president and head of research, at Riyad Capital, commented: "This is welcome news for bond investors that are struggling with a dwindling supply of Saudi government bonds. We expect any issue backed by sovereign guarantees to be extremely well received, particularly by institutional investors."

Bukhtiar said: "Clearly there is a strong appetite for quality issues. From the issuers' perspective, conditions are ripe to tap debt markets with tight spreads and historically low borrowing costs."

Arab News