Almarai misses mark on $533m sukuk issue

By Nathan Gray contact

- Last updated on GMT

Almarai misses mark on $533m sukuk issue

Related tags: Finance, Saudi arabia

Saudi dairy and poultry producer Almarai missed its US$533m sukuk target by more than US$100m last week, a reversal from previous rounds of debt-issuing, which were routinely oversubscribed.

The firm announced it had raised a total of just US$426m from the financing round. The sukuk is intended to help fund Almarai’s US$5.6bn expansion plan​, which aims to see the company double its sales by 2020. Had the company raised the full amount, its total sukuk issues would have equalled its paid-up share capital of around US$1.6bn, a level approved by Almarai’s board two years ago.

Almarai Company is pleased to announce that it has successfully raised an amount of [US$426m] on September 16th 2015. The current issue was made on a floating rate basis for seven years and was a private offering to sophisticated investors resident in the Kingdom of Saudi Arabia​,” said the firm in a statement, announcing the completion of the debt issue.

Oil fall spooks markets

Almarai’s inability to raise the full amount it originally targeted marks a change from past sukuk issues which saw high demand for the debt, with one round in 2012 being five-times oversubscribed.

IslamicFinance.com quoted an anonymous GCC-based banker who said this weak demand for Almarai’s debt was a result of “tight​” demand-side conditions, and suggested the fact the firm had not revealed the profit rate for the sukuk issuance would not improve confidence.

Following the dramatic fall in the price of oil, investors across the GCC have struggled with a lack of liquidity, alongside highly volatile, and frequently bearish, financial markets. A Bloomberg article recently suggested investors may be put off investing in Saudi debt, including debt raised by the Saudi government, because of a general lack of transparency around debt issuances.

Profits still solid

Beyond the limp debt round, Almarai’s core performance remains strong, with the firm announcing an 11% year-on-year increase in sales for its most recent financial quarter, along with a profit of US$141m – although it also revealed a US$87.5m write-down​ in the valuations of its subsidiary companies. However this was more than offset by a one-time insurance payout for a bakery fire last year, totalling US$118m.

The firm’s ambitious five-year expansion plan calls for expansion across all its business units, along with new product development. Before it revealed the new plan, Almarai had already announced a US$1.3bn investment plan for its relatively new poultry operation, which is yet to turn a profit.

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