Mon, Jan 25, 2016 - Page 13 News List

Saudia to refinance loans, expand through bond sale

Bloomberg

Saudi Arabia’s main airline said it is planning to sell as much as 5 billion riyals (US$1.3 billion) of Islamic bonds, or sukuk, in the second quarter to refinance loans and buy airplanes, becoming the latest issuer in the kingdom to tap debt markets for cash amid an oil slump.

The carrier known as Saudia is in negotiations with local banks to oversee its first-ever bond offering, Saudi Arabian Airlines director-general Saleh al-Jasser said in an interview at the Sakhir Air Base during the Bahrain International Airshow on Friday.

The plans are part of a wider Islamic bond program the company would turn to “as and when needed” for funding, he said.

“We will be initiating a sukuk program for the purpose of refinancing some of our existing loans and also to help finance our growth plans, to finance the acquisition of fleet,” al-Jasser said.

Borrowers in the oil-exporting nation are turning to debt markets in greater numbers amid a slump in crude prices that is worsening the nation’s budget deficit. Brent crude oil has fallen 36 percent in the past 12 months to US$31.63 per barrel as of 3:26pm in London.

Saudia’s bond sale comes as the airline, which bought 50 Airbus SAS aircraft at the Paris Airshow last summer, seeks to boost its fleet to 200 airplanes by 2020. The carrier is following Dubai-based Emirates airline and flydubai in issuing sukuk.

The airline is to take delivery next week of three Boeing Co 787-9 and one 777-300ER, which are to be used for flights to Paris; Guangzhou, China; Casablanca, Morocco; and Dubai, in addition to domestic routes, al-Jasser said.

Saudia plans to add domestic and regional flights this year and next year, after announcing the start of services to Algeria; Ankara; Munich, Germany; and the Maldives, he said.

Saudi Arabia plans to raise as much as 20 billion riyals at a debt auction next week to finance its budget deficit, two people familiar with the plan said this week. The IMF predicts the country’s fiscal shortfall will reach 14 percent of GDP this year.

Meanwhile, Saudi Arabia’s low-cost carrier Flynas is talking to Airbus, Boeing and Bombardier Inc about a potential order for 100 new aircraft, after the carrier posted a profit last year for the first time in its history.

The airline is considering buying 60 new airplanes in the next five years with an option for 40 more, Flynas CEO Paul Byrne said in an interview in Bahrain. It is considering the Airbus A320neo, Boeing 737 MAX and Bombardier CS300 aircraft and expects to decide on the order this year.

“We’re talking to Airbus, Boeing and Bombardier about purchasing or leasing depending on which is the best deal for us,” Byrne said. “If we were to change from Airbus to Boeing or Bombardier, that will be a big move for us, but it’s not as dramatic as it sounds.”

The leases on Flynas’ 26 aircraft are to end within six years and it will require additional aircraft for replacement and growth. On top of that, it will need more aircraft to cope with demand for pilgrimages to the country’s holy sites, increasing frequencies to some destinations and catering to Saudi Arabia’s large domestic travel market, he said.

“No one really knows the bottom of the Saudi market yet. There’s room for competition and expansion,” he said.

The airline is exploring different options for financing new aircraft, including bank loans and sale and leaseback, Byrne said.

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