25384 - KIC NewCo Investment

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Summary of Proposed Investment

Project Number

25384

Company Name

Saudi Home Loans Company

Date SPI Disclosed

Nov 30, 2006

Country

Saudi Arabia

Industry

Financial Markets

Projected Board Date

Jan 2, 2007

Status

Completed

Sector

Primary Mortgage Institutions

Date Revised SPI Disclosed

Nov 30, 2006

Department

Regional Industry FIG MCT

Environmental Category

C - No Impact

Previous Events

Approved : Feb 15, 2007
Signed : Apr 4, 2007
Invested : Oct 2, 2007

Project Description

The proposed transaction consists of a green field investment in a new specialized mortgage finance institution (the NewCo) that is proposed to be established in the Kingdom of Saudi Arabia (KSA). IFC is planning to invest a total of c.a. $27 million of minority equity investment in the NewCo. The NewCo is planned to offer various housing finance products, targeting middle-income customer segment in Saudi Arabia, and grow to the nation’s largest specialized mortgage finance institution over years.

Sponsor / Cost / Location

Product Line	IFC Investment (million USD)
Risk Management
Guarantee
Loan
Equity	26.66

Development Impact

The project is expected to have a high impact contribution on residential infrastructure development and financial sector development in KSA:

Increased Access to Housing Finance:

The NewCo will provide increased affordability of housing finance for middle-income Saudi households, currently underserved by developers, who tend to focus on the wealthiest segments of the population. Access to housing is a major problem in KSA, with demand consistently outstripping supply and the housing deficit increasing each year. By 2020, there will be an estimated demand for 7 million houses, an increase of 3.9 million units from current levels. The major constraint on the development of the real estate sector is the lack of sufficient availability in housing finance.

Establishment of Replicable Business Model in the Region:

The business model of the NewCo will send a powerful signal on the best practice of the corporate governance and the operations to current and potential market participants. KIC/NewCo is completely on board with these views, as shown by its negotiations with HDFC for capacity-building technical assistance.

Capital Markets Development:

The IFC Loan would provide the NewCo with access to long-term funds to acquire and lease a steady stream of properties initially financed by the IFC Loan. The revolving nature of the IFC Loan provides support for the NewCo’s potential securitization activity, and further accelerates the development of mortgage finance/MBS securitization market in the country.

Introduction of Sustainability Standards in Housing Construction:

The acceptance and implementation of sustainability standards by DAAR and other developers whose residential products will be the source of origination for the NewCo will send an important and industry wide signal to the real estate sector in Saudi Arabia. If this initiative is successful, it could lead to broader acceptance both voluntarily by other competing builders and by regulatory authorities through inclusion of such standards in building codes. The experience gained in this connection could be used to introduce similar initiatives in other emerging markets.

The planned introduction of a number of international standards of financial measurements, accounting policy, corporate governance, performance benchmarks, organizational structure, operational processing, and credit risk management is expected to make the NewCo a strong player with sound business practice. The establishment of such practice will be an excellent role model to the other players in KSA, regardless of industry. Moreover, the compliance with the IFC sustainability standards in the construction of the residences that the NewCo deals with will strongly promote the establishment and the enhancement of sustainability standards within the residential construction sector in KSA. IFC has been in dialogue with the Saudi Arabian authorities to discuss the establishment of a new specialized mortgage financing company who is providing support to promote the project and strongly welcome IFC’s participation.

Contacts

For Inquiries About the Project, Contact

Simon Stockley, Chief Operations Officer
Kingdom Installment Company
P.O. Box 105633 Riyadh 11656,
Kingdom of Saudi Arabia

Telephone: +9661 206 1100 ext. 1177
Fax: +9661 206 1100 ext. 1178

For Inquiries and Comments About IFC, Contact

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IFC Corporate Relations
2121 Pennsylvania Avenue, NW
Washington DC 20433
Telephone: 202-473-3800
Fax: 202-974-4384
E Mail: Webmaster

This Summary of Proposed Investment is prepared and distributed to the public in advance of the IFC Board of Directors' consideration of the proposed transaction. It is not an offer of shares to the public and is intended solely to enhance the transparency of IFC’s activities. This document should not be construed as presuming the outcome of the Board decision. Board dates are estimates only. The following SPI is disclosed in accordance with IFC’s Policy on Disclosure of Information that went into effect April 30, 2006.

The map is for illustrative purposes and does not imply the expression of any opinion on the part of the World Bank, concerning the legal status of any country or territory or concerning the delimitation of frontiers or boundaries. Country borders or names do not necessarily reflect the World Bank Group's official position. In some cases, available project location information is limited to the country of the project's activities. Locations are approximate.

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