Dar Al-Arkan, Saudi Arabia's biggest real estate developer by market value, has signed a profit rate swap agreement to lower the costs of Islamic bonds, or Sukuk, worth $450 million. In February, the firm sold the Sukuk, priced at 10.75 percent, as part of efforts to fund its expansion, in the middle of a months-long freeze in Gulf Arab fixed-income markets which was sparked by Dubai's debt woes. The developer had immediate refinancing needs with an earlier $600 million Sukuk maturing in March and therefore could not postpone its February issuance. Many companies in the region have postponed issuances and have faced higher financing costs as a result. To lower the costs, Dar Al-Arkan said it had signed a swap agreement, compliant with Islamic law, to cover 50 percent of the Sukuk, or $225 million, it said in a statement on the Saudi bourse website on Wednesday. The developer did not say who the agreement was signed with. As a result, the coupon profit rate would fall to 7.95 percent above 3-months SAIBOR, while total average financing cost for the company's borrowings for 2010 would fall to 5.02 percent, it said. The five-year Islamic bond was the fourth issue from the developer. Bankers had said Dar wanted to raise at least $500 million and up to $750 million. Dar wants to use proceeds from the latest Sukuk to finance SR2.7 billion of capital expenditure during 2010, a prospectus for investors showed. The company swapped $225 million into floating-rate notes, reducing the profit it pays on the five-year sukuk to 7.95 percent more than the three-month Saudi interbank offered rate, according to a statement to the Dubai bourse on Wednesday. The notes paid a coupon of 10.75 percent when they were sold in February.
