(RIYADH, SAUDI ARABIA) -- A new dawn may be breaking over Saudi Arabia's long-established real estate financial markets. 

Leaders in the country's capital markets are considering creating a model after Fannie Mae to help the housing industry.

For starters, Saudi Arabia's Kingdom Installment Company (KIC) announced it has redeemed its maiden Sukuk issued in 2006, despite the exceptionally difficult circumstances in the international capital markets.
 
Waleed Al Murshid, manager of the International Finance Corp. in Saudi Arabia, commented, "The successful issuance and redemption of the KIC Sukuk points to a new source of credit besides banks.

"The IFC supports this solution as part of a general strategy to augment housing finance in the Saudi capital markets and drive the economic progress of the country."
 
He adds, "The Saudi government initiative to establish a company modeled after Fannie Mae in the United States and the enactment of real estate financing laws in the Kingdom represent a new drive for the Saudi real estate sector."

Sukuk is the Arabic name for a financial certificate. It can also be viewed  as an Islamic equivalent of a bond.

However, fixed income, interest bearing bonds are not permissible in Islam. So Sukuks are securities that comply with the Islamic law and its investment principles, which prohibit the charging, or paying of interest.

Financial assets that comply with the Islamic law can be classified according to their tradability and non-tradability in the secondary markets, financial industry sources explain.

KSA MBS I International Sukuk was lead arranged by Unicorn Investment Bank, which also acted as Shari'ah Advisor and, along with Standard Bank Plc, Joint Bookrunner to the transaction.

The Sukuk, which attracted investors from Europe, the Far East and the GCC, was credit enhanced  by the International Finance Corporation (IFC), a member of the World Bank Group, and backed by real estate lease contracts developed by Dar Al-Arkan Real Estate Development Company (Dar Al-Arkan) based in Saudi Arabia.
 
It was the first mortgage-backed Sukuk by a GCC corporate to be issued in the international capital markets.

The purpose of the Sukuk was to leverage the company's financing capabilities to provide home-buyers within the Kingdom with funds to purchase their homes in return for affordable monthly installments.
 
Hathloul Al Hathloul, General Manager of KIC, says: "KIC, previously a funding unit of Dar Al Arkan, launched its credit business in 1998, providing more than 5,000 Saudis with the required funding to purchase housing units from Dar Al-Arkan through a leasing scheme.

"This established a solid foundation for KIC to become the first Saudi company to issue a mortgage-backed Sukuk in the international capital markets, thereby securing funds for home-buyers to purchase homes from a real estate development company through mortgage financing."

Now, he says, "the redemption of the Sukuk reflects both the strength of the Saudi economy in general, as well as that of the Kingdom's real estate sector." 

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