Newly-built residential property which forms part of Dar Al Arkan Real Estate Development Co’s Al Qasr home construction project in the Al-Swaiyadi district of Riyadh, Saudi Arabia in this October 13, 2010 file photo. Three sukuk from Dar Al Arkan are among the five best-performing Shariah-compliant bonds in the region this year.


Bloomberg/Dubai


Demand for housing in Saudi Arabia is translating into a rush for some of the lowest-rated Islamic debt in the six-nation Gulf Cooperation Council.
Three sukuk from Dar Al Arkan Real Estate Development Co are among the five best-performing Shariah-compliant bonds in the region this year. The company’s notes due May 2019 returned 8.2% through July 21, compared with an average 2.1% for the GCC sukuk market, according to data compiled by Bloomberg.
The gains underscore efforts by Saudi Arabia’s King Salman, who took power in the biggest Arab economy in January, to stoke construction amid an estimated shortfall of 2mn homes. The securities have been helped by a clamour for high-yielding assets as the US Federal Reserve prepares to raise interest rates for the first time since 2006.
“There’s significant potential for housing projects in Saudi Arabia, and Dar Al Arkan plays an important role there with its substantial land bank,” Ali Soner Guney, a fund manager at National Bank of Abu Dhabi, the biggest lender in the UAE, said by phone on July 21. The “high-yielding” securities are attractive because the company faces no problems with repayments, he said. Dar Al Arkan, rated three levels below investment grade at Moody’s Investors Service, is seeking to boost its homebuilding business and move away from developing and selling land to property companies, which contributes more than 90% of its revenue.
The Riyadh-based developer has reported a worse-than-expected 42% drop in second-quarter profit to 70.5mn riyals ($19mn) as land sales declined. The company repaid a 1.7bn riyal sukuk in February. Its two other sukuk mature in November 2016 and May 2018.
“They offer an interesting level of yield for short maturities,” Montasser Khelifi, a Dubai-based senior manager at Quantum Investment Bank Ltd, said by phone on July 21. The company “operates in an interesting sector, is rated and it has just repaid a sukuk at the beginning of the year,” he said.