U.A.E.’s GEMS Plans Perpetual Bond Sale for School Expansion

GEMS Education Ltd., the world’s biggest privately-owned operator of schools, plans to raise about $500 million from a debut sale of perpetual Islamic bonds to fund expansion and tap demand for Shariah-compliant assets.

Morgan Stanley, Abu Dhabi Islamic Bank PJSC and Credit Suisse Group Inc. will help Dubai-based GEMS manage the sale of the bonds without a maturity date, Chief Financial Officer Nicholas Guest said in a phone interview. The company will begin meetings with fixed-income investors this week, he said.

GEMS will seek to raise between $650 million to $1 billion from different sources as part of a plan to build 21 new schools, including in the U.S. and U.K., over the next three years and boost capacity at 10 existing institutions, Chief Operating Officer Dino Varkey said in March. About 130,000 students attend its network of 100 schools in 11 countries.

The planned sukuk is “off the back of very strong underlying education demand in the U.A.E.” and Persian Gulf region and part of GEMS’ long-term investment plan, Guest said. “In the current market conditions there is good demand in the property and real estate sector for education assets,” he said.

GEMS will hold investor meetings from Oct. 28 to Nov. 8 in the United Arab Emirates, Asia and Europe, two people familiar with the plan said. An offering of Regulation S only, subordinated perpetual callable dollar sukuk may follow, said the people, asking not to be identified because the information is private. The SEC regulation, known as Reg S, exempts overseas offerings from the registration requirements under the Securities Act of 1933.

Perpetual Bonds

Other Dubai-based companies have sold perpetual bonds this year. Majid Al Futtaim Holding LLC, operator of Carrefour SA supermarkets in the Middle East, last week raised $500 million from such a sale. The securities were priced at 7.125 percent, according to data compiled by Bloomberg, and received more than $4 billion in orders, people familiar with the sale said.

GEMS obtained a 2 billion-dirham ($545 million) loan in April to refinance investments and fund expansion in the Middle East and North Africa. The six-year Islamic and conventional facility was arranged by Abu Dhabi Islamic Bank PJSC, Mashreqbank PSC, Dubai Islamic Bank PJSC and Noor Islamic Bank.

“Having gone to the sukuk market for our bank refinance in March we found good interest and liquidity from the Islamic funding sector for education,” Guest said. “So we decided that it was appropriate to go to a structure that allowed Islamic funding institutions to participate as well.”

Sukuk Sales

Sales of Islamic bonds this year in the six-nation Gulf Cooperation Council, which includes Saudi Arabia, the United Arab Emirates and Qatar, have dropped 15 percent from the same period a year ago to $16.4 billion, according to data compiled by Bloomberg. Saudi Arabia’s General Authority of Civil Aviation raised $4.06 billion in September in the biggest sale of Islamic bonds in the region this year, the data show.

GEMS may also seek to sell up to 25 percent of its equity through a private placement as part of its fundraising and has hired Credit Suisse to help with the plan, Varkey said Sept. 16.

The company continues to look at various sources of capital from real estate funding, senior debt, sukuk and equity and continually reviews its capital structure, Guest said.

GEMS repaid a loan to Abraaj Capital Ltd., the Middle East’s biggest private equity company, this month, Guest said.

Abraaj bought a 25 percent stake in GEMS Education in 2007 and in 2012 restructured its stake into a three-year convertible loan instrument, according to Abraaj’s 2011 annual report.

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