Saudi utility plans $800m sukuk

Saudi water and power project developer ACWA Power plans to sell an $800 million debut Islamic bond this year and list on the Saudi stock exchange around the end of 2014 as it ramps up production capacity, its chief executive said on Thursday.

ACWA, which aims to have a gross production capacity of 38,000 megawatts (MW) of power by 2017 from its current 15,850 MWs, has said previously that securing a credit rating would be a step on the road to launching an Islamic bond, or sukuk.

However, chief executive Paddy Padmanathan indicated the firm might come to market without a rating.

“That was one of the things that kept us back for a while, and there was a decision (internally) around ‘do we need to be rated’ as ratings are a one-way street – once you rate, you are stuck with the story forever,” he told reporters on the sidelines of a renewables event in Dubai.

International debt sales from Saudi entities are rare, meaning there is much investor interest in paper from the kingdom – bluechip Saudi Basic Industries Corp printed its first deal in three years last week and received bids worth more than five times the $1 billion bond size.

Most borrowers seek a rating because investors often have restrictions which limit them to investing in paper of a certain grade, although some Gulf borrowers have completed deals without one, including the government of Dubai and Emirates airline.

Padmanathan said ACWA had just finished a study with consulting firm KPMG about its readiness for an initial public offering (IPO) and that it was targeting a listing for the end of 2014.

He wouldn’t be drawn on how much it might raise from the IPO, although he said the company’s current valuation was “a few billion dollars.”

No banks had been mandated to arrange either the sukuk or the public share sale, Padmanathan said.

IFC STAKE

ACWA is also negotiating a 5 percent capital increase with the International Finance Corporation (IFC), a unit of the World Bank, Padmanathan said. He declined to comment on how much the IFC might pay for the holding.

In January, two Saudi government-owned funds bought a 19.4 percent stake in ACWA. No price was disclosed.

ACWA was currently bidding for renewables projects worth $3 billion in the Middle East and North Africa region, including what would be Saudi Arabia’s first utility-scale solar power plant – a 100 MW plant in Mecca, Padmanathan said.

The Saudi firm was bidding against a consortium led by Electricite de France, with a decision expected on the $250 million scheme by the end of the year.

A power purchase agreement for the 1,800 MW Rabigh 2 power plant, commissioned by Saudi Electricity Co (SEC), would likely be signed by the end of the month, with financial close on the $1.2 billion project financing soon after, he said.

The project was thrown into confusion earlier this year after SEC changed the fuel for the plant to gas from oil – with speculation that the ACWA-led consortium, which included Samsung C&T and MENA Fund, would have to reapply to build the scheme as a result.

Rabigh 2 is now due to cost $1.6 billion, Padmanathan said. That would be a significant reduction from the $2.5 billion expected total when it was a fuel oil project.-Reuters