Bonds & Loans: Dar recently priced a USD500mn sukuk that tightened nearly 600bp and upsized by UDS200mn – what were the key drivers behind such a bullish dynamic? Could you walk us through the highlights of the issue?
Mika Toivola: The main driver behind the tight pricing is naturally much improved company credit perception. 2017 was a turnaround year for DAAR, driven by introduction of luxury branded tower in Dubai, to the company turning very much to be client-driven organization with strong sales and marketing efforts.
Last year was also a strong year in terms of performance landing us with almost USD5bn of revenue and USD3.2bn of cash at the year-end, putting the company in a very comfortable position to manage upcoming liabilities, and to execute our expansion strategy locally and internationally. This, coupled with non-deal and -deal road shows delivering the right message to investors, was key for the successful transaction.
Tightening of issuance pricing and sizing during the execution was more driven by how the company manages syndicates, being bold and demanding.
Bonds & Loans: How does this issue fit into your funding strategy for the year?
Mika Toivola: We are all facing increasing rate scenario and uncertainties in DCM that is driving supply in the market and DAAR is no exception to this. Our strategy in addressing DCM and our funding needs has always been the same; prefunding liabilities year ahead and we stick to our strategy. The new issuance puts DAAR in to a position where next non-funded repayment is at 2022, leaving us with 4 years of clear skies to use our operational cash flow to invest in - and to deliver - our strategic targets.
Bonds & Loans: Going through the list of bookrunners on the deal, it is an impressive – and eclectic – line-up. How do you pick partner banks for your deals, what are the key qualities or factors you look out for?
Mika Toivola: That’s true, we are very happy to have strong partners on the book. For us the priority is to reach new investors and new geographies, but we also want to have partners who can execute the underlying process effectively, as the cycle from deciding to tap the market to having funds in the account should not be more than four weeks.
Bonds & Loans: We are beginning to see a trend of Saudi real estate companies issuing USD – and local currency – sukuk in recent months. What do you think is behind that dynamic?
Mika Toivola: The Saudi market has been fortunate to have frequent sovereign issuances in last two years that has allowed both issuers and investors to see kingdom and capital markets in different light. This, combined with tight local banking system and increasing local and international funding costs, has lead entities to seek diversification in their funding strategy.
Bonds & Loans: What are some of the risks on the horizon for Dar al Arkan specifically and the real estate sector in the GCC as a whole?
Mika Toivola: We are very fortunate to have our liabilities managed up till 2022 so in terms of funding we can relax for the time being. The biggest challenge would be the market conditions for real estate in Kingdom that has been weak now for three years and continues to be somewhat tight this year; thereafter it is expected to recover. Dubai residential market seems over supplied and may see some correction in the horizon. Dar’s strategy is to get ready for an upswing in the KSA, and remain cautious in Dubai with regards to introducing new projects.
