Saudi Arabian real estate developer Dar al-Arkan is expected to announce the final size and pricing details for a planned Islamic bond (sukuk) issue by 4 February, according to bankers close to the deal.

The deal is expected to have a tenor of five years, will be about $600m in size, and will pay investors a return of more than 10 per cent.

Bankers say the pricing will have to be set at this relatively high level to convince lenders who are still cautious following the Dubai World debt crisis in November and defaults by two large Saudi businesses, the Saad Group and Ahmad Hamad al-Sosaibi & Brothers, in 2009.

Dar al-Alkan is rated as BB- by Standard & Poor’s, and Ba2 by Moody’s Investors Service, putting it below investment grade.

A successful bond issue by the real estate company could open up the market for other non-investment grade issuers in the Middle East.

“There is a lot of interest in this issue and the business has a good outlook, but it is the first issue to come out of the Middle East since the Dubai World debt problems and there are still some concerns about lending to private businesses in Saudi Arabia,” says one London-based banker.

“There has been a good response to Dar al-Arkan, but international investors are waiting to see what the response is like regionally before starting to commit,” says another Dubai-based banker.

Dar al-Arkan already has a $600m sukuk outstanding that was issued in 2007 and is due to be repaid on 7 March. The company told investors who attended the roadshow for the new sukuk issue that it has the cash to settle this existing debt. It added that the new funds will be used to help finance $720m capital expenditure in 2010.

The sukuk issue is being led by Germany’s Deutsche Bank, Bahrain’s Unicorn Investment Bank and the US’ Goldman Sachs. The issue is planned to be completed by mid-February.