Energy Lender Apicorp Timing Market for $1 Billion Sukuk

  • Standard Chartered, Goldman Sachs are lead arrangers
  • Gulf Arab oil producers seek funding after crude tumbles

Arab Petroleum Investment Corp. plans to raise as much as $1 billion from the sale of Islamic bonds this year -- if the price is right.

The offering would be part of a five-year, $3 billion sukuk program, which the multilateral energy lender started last year with a $500 million issuance to tap investor appetite for Sharia-compliant instruments, said Raed al-Rayes, deputy chief executive officer of the company known as Apicorp. 

The risk premium on the Apicorp sukuk compared with similar-maturity U.S. Treasuries widened from 98 basis points when the Islamic bonds started trading on Oct. 22 to a peak of 197 basis points on Feb. 11, according to data compiled by Bloomberg. The difference was 113 basis points on Wednesday.

“We know that the margins went up after our issuance and this is what is making us wait for the right moment,” al-Rayes said in a July 17 interview in Riyadh. “When it comes to the dynamic of lending, both sukuk and bonds are experiencing hiccups in the margin. The cost of borrowing has increased dramatically.”

Energy producers in the six-nation Gulf Cooperation Council tripled their loan and bond borrowings in the second quarter from a year earlier to $12.9 billion, data compiled by Bloomberg show. The dash for cash started after a drop in oil prices to about half their 2014 level eroded the producers’ ability to pay for exploration and production.

Loan Portfolio

As a lender, Apicorp expects this year to match or exceed the $500 million in new loans it made in 2015, al-Rayes said, as some delayed projects come back on track. Its $3 billion portfolio includes loans for renewable-energy projects in Dubai and Morocco, and Apicorp is considering taking equity in a Bahrain-based company, he said, declining to identify the prospect.

The sukuk program, with Standard Chartered Plc and Goldman Sachs Group Inc. as lead arrangers, was designed to attract regional investors who are focusing increasingly on Islamic finance, al-Rayes said. “We believe sukuk is an opportunity for us to capture certain investors who are limiting their investment to Sharia-compliant instruments.”

Current pricing for sukuk is still “too expensive,” and Apicorp may postpone the issue and rely on “cheaper” funding sources, al-Rayes said, without specifying any alternatives.

Apicorp, based in Dammam, Saudi Arabia, is owned by the Organization of Arab Petroleum Exporting Countries, with Saudi Arabia, Kuwait and the United Arab Emirates each holding 17 percent, according to its website.

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