An Almarai milking unit

An Almarai milking unit

Almarai raising funds for growth

Almarai has broadened its products portfolio and invested with high-profile partners and aims to do more of the same in the coming months

01 June 2013

Saudi Arabian dairy producer Almarai plans to raise at least $500 million from the sale of a debut international Islamic bond to help to finance ambitious growth plans, a senior executive was quoted by Reuters as saying.

The company, which is the Gulf’s largest dairy firm, has previously sold two Islamic bonds, or sukuk, in local currency, open only to Saudi institutional investors.

“We’re looking at how to get financing internationally. We’re targeting at least $500 million and this should be out in the next 12 months,” Paul Louis Gay, Almarai’s chief financial officer said. The company aims to invest SR3 billion ($800 million) annually in the next five years, he said.

“Proceeds will be used to finance our growth, mainly factories, distribution capabilities and farms.” Gay said the structure of any eventual issue was still under consideration, but the company could opt for a hybrid sukuk. Hybrid structures are rare in the region, although two banks in the UAE have tested markets with hybrid sukuk since last year. Hybrids are usually accounted for as subordinated debt on a company’s balance sheet, and contain some equity characteristics.

Traditionally, Saudi companies and other entities have relied on bank loans and retained earnings to finance their expansion. But many are now diversifying their financing requirements into bond markets. Despite a burst of riyal-denominated debt issuance, globally-marketed bonds or sukuk remain rare, and therefore are likely to attract strong investor appetite.

Almarai reported a first quarter net profit of SR255 million, up 5.4 per cent over the prior-year period, due to increased revenues, particularly in poultry sales.

The company has a wide-ranging portfolio that covers dairy liquids, yoghurts and desserts, foods, juices, bakery, poultry and infant formula. It claims its Holstein cows produces almost double the amount of milk of European cows. Almarai operates a fleet of almost 1,000 tankers, trailers, tractor heads and nearly 3,000 vans all of whom undertake over 100,000 trips annually. Together its vehicles cover more than 190 million km to deliver dairy, juice, bakery and poultry products to 89 sales depots and 48,000 customers across the six GCC states.

Among recent developments was the announcement that International Dairy and Juice (IDJ), a joint venture between Almarai (52 per cent) and PepsiCo (48 per cent) signed an agreement to increase its stake in Teeba Investment for Developed Food Processing Company, which operates in Jordan, from 75 per cent to 100 per cent. This was achieved through the purchase of the minority shareholding of 25 per cent held by Alsafa Company for a total consideration of 12 million Jordanian dinars ($16.9 million).

Meanwhile, Australia is keen to export more of its dairy products to Saudi Arabia where its customers include Almarai and Luna. Peter Meyers, Dairy Australia’s international trade development manager, said his country aims to expand dairy exports to 50,000 tonnes annually from 28,000 tonnes now.

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