Sipchem Sukuk

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Sipchem (Saudi International Petrochemical Co) plans to fund its expansion with Islamic bonds and expects to raise up to 2 billion riyals ($533.3 million) from the issue.

The company has already started the road show for the Sukuk sale and plans to start the book building process next week.

Chief Executive Ahmad al-Ohaly told Reuters “We target raising 1.5 billion riyals from the issue and the value may rise to 2 billion riyals based on our need and on the offers (from investors)”.

Sukuk is issued in local currency and will be registered in denominations of 100,000 riyals ($26,000). Sukuk will last for 10 working days provided there is a minimum initial subscription of one million riyals.

Government-owned institutions like Public Pension Agency, General Organization for Social Insurance and Human Resources Development Fund have expressed interest in the sukuk issue.

Mudaraba sukuk follows most important type of business partnerships. A bank provides capital for a project while the entrepreneur manages the deal. The profits are split according to a pre-determined ratio and the bank bears any monetary losses that arise from the project.


Sipchem?s three projects include building a chemical plant in partnership South Korea’s Hanwha Chemical, an ethyl acetate plant and a 50-50 joint venture with a Korean firm to build a wiring cable compounding material plant.

The project is expected to be completed in the beginning of year 2013.

Total cost of these projects will be financed partly through sukuk and rest via self-financing and loans. However, the CEO is confident of covering the needed financing through sukuk sale. Deutsche Securities and Riyad Capital were appointed as joint lead managers for the sukuk.

Sipchem is poised to grow once the three projects become operational.


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