REUTERS SUMMIT-Saudi developer looking to buy foreign properties

Angus McDowall and Asma Alsharif
Reuters Middle East

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* Wants to diversify over five-seven years

* Turkey, Asia are possible targets

* To pay 2014, 2015 sukuk with company earnings

* Waiting to see U.S. fiscal cliff impact

* Mortgage law likely to lift real estate price a little

RIYADH, Nov 19 (Reuters) - Saudi Arabia's largest listed

real estate developer, Dar Al Arkan, plans to buy

assets in Asia as part of its strategy to diversify revenue

streams, its chairman Youssef al-Shelash told Reuters on Monday.

Shelash said the company owned just under 35 million square

metres (8,650 acres) of land, and in the past it has relied

heavily for revenue on sales of land within Saudi Arabia.

Its decision to branch out overseas illustrates how a

growing number of Saudi companies, buoyed by the economic boom

of the past two years, are looking to diversify abroad.

Outward flows of foreign direct investment from Saudi Arabia

hit $3.4 billion last year, close to a record $3.9 billion

recorded in 2010, according to the Arab Investment and Export

Credit Guarantee Corp.

"We are targeting some geographical diversification. We have

a concentration issue. Most of our assets are in Saudi so we

would like to diversify outside Saudi Arabia through a long plan

over five to seven years," Shelash said at the Reuters Middle

East Investment Summit.

He said the company was targeting assets outside the Gulf

and North Africa, "maybe in Turkey or Asia, Malaysia, Singapore,

some stable countries", and that it would look to buy existing

buildings rather than develop new sites.

"We would like to get some stability in the company income,"

he said, but added that it would likely take five to seven years

to generate 40 percent of revenue from rental income, a goal

which he said last year would hopefully take three years.

Shelash added the company was still finalising a more

detailed strategy, which it hoped to have ready early next year.


Dar has enjoyed a dramatic recovery in its fortunes over the

past two years, which to some degree mirrors the fortunes of the

Saudi economy.

Saudi Arabia was hit by the global economic crisis of

2009-2010 but after the Arab Spring uprisings of early 2011, the

government boosted spending heavily in order to ease social

tensions. This has helped Dar and many other Saudi companies.

When Dar issued an Islamic bond or sukuk in 2010, investor

demand was sluggish and the company had to settle for raising

$450 million instead of its target of $500-700 million.

This year, however, its sukuk yields have dropped sharply

and its share price has jumped 14 percent, far outperforming a 4

percent gain by Saudi Arabia's main stock index -

although the stock's value is still less than a quarter of its

2007 peak.

Although Dar is not explicitly backed by the government,

official action has convinced investors that authorities would

like to see the company succeed.

Last October, the country's Public Investment Fund approved a

4 billion riyals ($1.1 billion) facility to finance one of Dar's

biggest projects, the Qasr Khozam development in Jeddah,

estimated to cost 12 billion riyals.

The company now has outstanding debt of around 4.4 billion

riyals, with sukuk of 750 million riyals and 1.69 billion riyals

maturing in May 2014 and February 2015 respectively. It also has

short-term murabaha Islamic loans with local and international

banks, which it plans to roll over.

Dar, which posted third-quarter net income of 867 million

riyals, paid off a $1 billion sukuk in July this year after

selling land.

Shelash said the sukuk maturing in 2014 and 2015 could be

paid off through company earnings without selling assets and

would not be rolled over, adding that the company was waiting to

see the impact of the U.S. "fiscal cliff" on international debt

markets before it would consider raising more money.


Saudi Arabia's real estate market, characterised by high

land prices and pent-up demand for low-cost housing, is on the

brink of potentially significant changes. A law to regulate

mortgage lending for the first time was approved this year.

Shelash said it was too soon to predict the impact of the

law on the real estate sector, but that it was likely to

increase prices as lenders eventually gained confidence in the

regulatory system and more consumers gained access to financing.

"It will add new additional demand. It will also make the be a little bit up," he said. He added that he was

not sure what the direct impact would be on Dar's business.

Although the cabinet approved the law in July, details have

yet to be made public by the central bank.

Analysts have said most housing demand in Saudi Arabia is

among lower-income Saudis, while many developers have tended to

focus on building more expensive properties which yield higher

profits. Rising land prices mean it is sometimes more profitable

for firms to simply trade land than to build low-cost houses.

Shelash said a housing-loan company partly owned by Dar

would likely focus on the upper-middle segment of the housing


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(Editing by Andrew Torchia and David Cowell)

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