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click on http://www.reuters.com/summit/MiddleEastInvestment12)
* 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.
RECOVERY
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.
MORTGAGE LAW
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
price...to 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
market.
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(Editing by Andrew Torchia and David Cowell)