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FAQs for Capital Structure Optimization Plans

WHY JABAL OMAR IS DOING A CAPITAL STRUCTURE OPTIMIZATION?

Jabal Omar Development Company (JODC) is undergoing a holistic capital structure optimization program to strengthen the Company’s capital structure and put it on a more stable and sustainable financial footing, enabling it to move forward with the completion of its masterplan in the dynamic central area of Makkah. The capital structure optimization program is resolving some of the Company’s outstanding debt issues, and help improve its financial position over the long run.

FINANCIAL TRANSFORMATION PLAN

1. Why is the company undergoing a financial transformation plan?

– The real estate development business is a capital expenditure intensive one, requiring a major amount of funding to complete projects, especially in the early stages of development. As such it is common for real estate developers to fund development through a mix between equity and debt. As part of the real estate lifecycle, once the assets under development become operational then income from the sale of those assets or from income generated by the management of those assets (such as the hotels, retail outlets, leased residential units…etc.) will help fund for the development of other phases of the project.

– In Jabal Omar’s case, most of our project is still under construction, requiring a significant amount of CAPEX to fund for the development of the infrastructure and the construction of the various phases of the project. However, despite the complexity and difficulty of constructing in the central areas of Makkah, we managed to successfully complete the development of the critical infrastructure work in phase one and most of the construction work in phases 2, 3, and 4.

– In 2020, our business was particularly hard hit. With Covid-19 related restrictions on Hajj and Umrah and international travel ban, we had low occupancy at our hotel rooms for a prolonged period. Also, curfews and other mobility restrictions hindered our ability to progress with the phases under construction.

– This meant the company had to come up with a plan that reassess the sustainability of our capital structure vis-à-vis funding requirements and to engineer a plan that will reduce our liabilities to deleverage our balance sheet, improve our liquidity to be able to service our debt while continuing to provide the required funding for the construction of the critical and outstanding phases of our project.

SAR 1.6 BILLION CREDIT FACILITY WITH BANQUE SAUDI FRANSI GUARANTEED BY MINISTRY OF FINANCE

1. Why did Jabal Omar Development Company require a SAR 1.6 billion credit facility? And why was it backed by the Government?

– Jabal Omar project is considered a strategic project and a key enabler of growth for the Hajj and Umrah sector. As such, it is crucial for us to continue ramping up construction and complete the outstanding phases of the project. This SAR 1.6 billion credit facility from Banque Saudi Fransi, with a tenor of 15 years, will be used to complete the remaining work of Phase 3 within the Jabal Omar project, which is 87% complete and expected to be delivered by end of 2022. The guarantee from the Government of this facility reinforces their commitment to supporting the Company’s strategic project.

 

ALINMA MAKKAH REAL ESTATE DEVELOPMENT FUND

1. Why did Jabal Omar Development Company decide to make a non-binding offer to unitholders of the Alinma Makkah Real Estate Fund to convert their units into shares of the company?

– The capital structure optimization program is aiming to resolve the Company’s outstanding debt issues, which includes a SAR 5.3 billion liability linked to the Alinma Makkah Real Estate Fund.

– Currently, the Company is obligated, through the agreement signed between us and the Fund manager in 2017, to make an annual rent payment of SAR 540 million to the Fund. However, the income capacity of the assets held by the Fund, which was further exacerbated by the impact of Covid-19, made it difficult for the Company to generate enough income from the assets owned by the Fund.

– So, after careful consideration of all possible options, the Company decided that the sustainable solution is to offer unitholders in Alinma Makkah Real Estate Fund the opportunity to become shareholders in the company via new share issuance.

– We believe that this solution is a win-win for both the unitholders in the Fund and the shareholders of the Company.

 

2. What will be the impact on Jabal Omar Development Company’s financial statement if the Alinma Fund proposed transaction is approved?

– The Alinma Makkah Real Estate fund owns a portion of income-generating assets in our portfolio Currently, the income generated from those assets are going towards rental payment of SAR 540 million per year to the Fund.

– If the proposed transaction were to succeed the impact on the Company’s financial standing would be positive and immediate

  • It would immediately remove approximately SAR 5.3 billion of liability from the Company’s balance sheet, lowering its debt-to-equity ratio and therefore adding further stability to the Company’s capital structure
  • It would also help improve the Company’s liquidity position. Excluding Jabal Omar’s ownership in the Fund (which is approximately 16.42%) the immediate impact on the income statement would be a cash saving of SAR 451 million per year.
  • The income generated from those assets can be put towards more productive and value-enhancing use, which will help unlock value for shareholders over the long run.

 

3. Why is this deal to the benefit of the unitholders of the Fund?

– They will be shareholders of the Company and be able to benefit from all income-generating assets in the project as well as the valuable landbank. Also, as we continue to make progress with the completion of the project over the next two years, this will add more value to all our shareholders in the future.

SYNDICATED LOAN

1. What were the main terms of the syndicated loan restructuring?
– The Company has agreed to the following key terms:

  • Reinstating SAR 1.2 billion of the available limit to be drawn for the completion of phases 2 and 4 of the master plan, taking the total financing to SAR 5.9 billion.
  • And longer maturity with a sculpted amortization repayment schedule based on the underlying projects’ cash flows and a step-down in the profit rate.

 

2. What are the benefits of restructuring the SAR 4.7 billion loan and receiving the SAR 1.2 billion top up from the banks?

– This successful restructuring is part of the Company’s turnaround plan to proactively optimize its capital structure and focus on the completion of construction within Phases 2 and 4 of the master plan.
– Moreover, optimizing our debt will give us a more flexible financial structure enabling us to benefit from the post-Covid-19 rebound in domestic and international pilgrims to Makkah.

 

ASSETS MONETIZATION

1. Why did you sell a number of plots of land in your master plan to other real estate investment companies?

– As part of our holistic financial transformation plan, we are activating our landbank through a sale to strategic partners and that will help the company to restructure its financial obligations, complete the construction work of the outstanding phases and expedite the development of the Jabal Omar masterplan. However, we have earmarked a very small fraction of our fully infrastructure-enabled land for sale.

– We are very pleased with the outcome of the strategic land sale. In the last 12 months, we have secured SAR 517 million from selling a 2,600.32 SQM land parcel and SAR 830 million from selling a 2,572 SQM land parcel.

– We were also very happy with the strong demand at the public auction. This is a testament to investors’ confidence in the economic viability of Jabal Omar’s mega project and proves that there is a strong appetite for investment in the project and in the central area of Makkah.

 

2. Will you be selling other plots of land in the coming 12 months?

– As part of our holistic financial transformation plan, we are activating our landbank through land sales. The company intends to use the sale proceeds in restructuring part of its financial obligations and complete the constructions work of the outstanding phases.

GENERAL JABAL OMAR PROJECT UPDATE

1. How far along are you in the various phases of the master plan?

– We are well over 60% complete in phases 2, 3, and 4 of the Jabal Omar master plan, and we expect that the holistic financial transformation program will enable us to proceed uninterrupted with the completion of those various phases. Within those phases, we expect to see a prime mixed-use area with shopping, commercial residential, and 5-star hotels that will shape the urban landscape of the central area of Makkah.

 

Head Office +966125478888 Ext. 3202 / 3203

Makkah: Chamber of Commerce – Al-Takhasosy District
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