UPDATE 1-Saudi Electricity plans $1.9 bln sukuk in May

* To raise up to $1.87 bln from sukuk in May

* CEO confident despite absence of gov't guarantee

By Souhail Karam

RIYADH, April 11 (Reuters) - State-controlled Saudi Electricity Co 5110.SE (SEC) is confident it would raise up to 7 billion riyals ($1.87 billion) from an Islamic bond next month to fund expansion, even without a government guarantee.

Saudi Electricity's chief executive, Ali Saleh al-Barrak, said the issue would take place next month and is projected to be for a minimum amount of 5 billion riyals.

"The amount that we plan to raise stands at between 5 billion and 7 billion riyals but we have not fixed it yet, pending the exact identification of the needs," Barrak told Reuters by telephone.

The Saudi bourse regulator Capital Market Authority (CMA) had earlier approved the issue.

The sukuk issue will be Saudi Electricity's third after it raised 7 billion riyals last year and a maiden issue for the same amount in 2007. [ID:nLS415898]

Barrak said the firm was keeping a close eye on its debenture levels. "The debt ratios are carefully studied. They are maintained within the internationally-recommended limits".

He did not immediately provide precise figures.

Last month, Banque Saudi Fransi 1050.SE raised $650 million in a bond sale [ID:nLDE62N06O].

In February, homebuilder Dar al-Arkan 4300.SE raised a lower-than-expected $450 million from a sukuk issue a few weeks after Saudi Hollandi Bank 1040.SE raised $193 million from its second sale of a sukuk under a private placement.

Regional debt markets are gradually improving after Dubai's government in March unveiled a $9.5 billion support plan for its conglomerate Dubai World which rattled markets in November with news it would ask for a stand-still on some of its debt.

As a result, Gulf Arab fixed-income markets remained largely shut for months, but are now slowly coming back to action with a series of issues led mainly by Saudi firms.

The lack of a government guarantee for some state-owned Dubai World debt came as a shock to many investors.

Barrak does not expect the new sukuk issue to encounter any difficulties even if they were not guaranteed by the Saudi government, which directly controls 74.3 percent of the utility's capital.

"Saudi Electricity is different. Its sukuk are for the financing of productive projects. Look at the power demand growth we have here. There is strong support by the government to the company but the government does not guarantee these sukuk," he said.

Saudi power demand is growing at an annual rate of 8 percent.

SEC is executing projects to add 5,105 megawatts of new power capacity by 2012. The firm also plans to buy electricity from an independent consortium that is developing a power and desalination plant with an output capacity of 850 megawatts.

A sukuk is similar to a bond but complies with Islamic law, which prohibits the charging or payment of interest.

Global sukuk issuance is likely to range between $15-17 billion in 2010, down from $19 billion last year, a recent Reuters poll shows. (Editing by Dinesh Nair) ($1=3.750 riyals)