Saudi set to beat Qatar to market with triple-tranche bond issue

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Banks’ loan growth to start upward trend in 2018: SABB chief

DUBAI, April 10, (RTRS): Saudi Arabia has opened books for a triple-tranche dollar bond while Qatar is meeting global investors ahead of its return to the debt markets since the beginning of a diplomatic crisis last year.

The Saudi deal, expected to price later on Tuesday, would be Riyadh’s fourth international public bond sale.

The kingdom has established itself as one of the top global debt issuers after it began selling international sovereign bonds in 2016 with a $17.5 billion debut sale, the largest bond ever issued across emerging markets.

The proceeds from the bonds are being used to help fill a budget deficit caused by low oil prices.

Saudi Arabia, acting through the Ministry of Finance, surprised the market earlier on Tuesday when it announced its plan to complete the transaction within the day and without a bond roadshow.

According to several fund managers and bankers, the timing of the Saudi deal could complicate Qatar’s planned bond.

“Issuing now, Qatar will get a lower order book, which will put them in a less competitive place to issue from,” which means Qatar may have to offer a generous pricing to attract large demand, said a fund manager.

Saudi Arabia, along with the United Arab Emirates, Bahrain and Egypt, has been locked in a diplomatic dispute with Qatar since June last year, with the former countries accusing Qatar of funding terrorism, an assertion Doha denies.

“Tensions obviously remain between the two states, and I guess there will be some competition herein about pricing and size of any deal,” said Timothy Ash, senior emerging markets sovereign strategist at BlueBay Asset Management.

Saudi Arabia is planning to issue seven-year, 12-year and 31-year notes.

Initial price guidance for the seven-year notes was in the 170 basis points area over US Treasuries, for the 12-year notes in the 200 bps area over UST and in the 235 bps area over UST for the 31-year paper.

The initial guidance was generous, fund managers said.

Mohieddine Kronfol, chief investment officer of Global Sukuk and MENA fixed income at Franklin Templeton Investments, said it was 30 to 40 basis points wide of the current yield curve, with the longest leg on offer looking more attractive, followed by the seven-year notes and the 12-year notes.

Citi, GIB Capital, Goldman Sachs International, HSBC and Morgan Stanley have been appointed as global coordinators for the issue. Bank of China, Industrial and Commercial Bank of China, JPMorgan Chase & Co and Mitsubishi UFJ Financial Group are working as joint lead managers.

Also:

RIYADH: Bank lending to the private sector in Saudi Arabia will steadily return to growth in 2018, backed by higher oil prices and increased government spending, the managing director of Saudi British Bank (SABB) told Reuters.

Lending activity to the private sector, a sign of banks’ confidence in the economy, had weakened over the past couple of years as the oil price slump slowed down the kingdom’s economic growth and cut demand for loans.

Loan growth shrank 1 percent in 2017 – for the first time in at least 11 years – following modest growth of 2 percent in 2016, as companies held back from investment amid concerns over government austerity policies in an era of cheap oil.

“Last year, in terms of the overall economy, we were on a gentle downward trajectory, gentle but nevertheless down, it seems like to me now that we have bottomed out and we are experiencing a ‘normal’ economic cycle,” David Dew told Reuters in an interview.

“I believe we are going to be on a gentle upward trajectory in 2018 that might reverse what happened in 2017,” he said, adding that loan growth is expected to be in the low single digits.

Saudi Arabia plans to increase spending to a record 978 billion riyals ($261 billion) in 2018, according to the finance ministry, up from 890 billion riyals in the original 2017 budget plan and 926 billion riyals of actual spending last year.

The government, which has embarked on an economic transformation plan called Vision 2030, has also slowed an austerity drive to help lift the economy.

“All these initiatives are helping to create a more buoyant economic outlook … I am not talking about heady growth in 2018, I am talking about a steady return to positive growth.”

He said SABB, the kingdom’s sixth largest bank by assets and 40 percent owned by HSBC Holdings, sees good business opportunities in the housing and financial sectors, in the country’s privatisation drive and in projects led by the government’s Public Investment Fund (PIF).

Riyadh aims to raise over $200 billion in coming years by selling stakes in oil giant Saudi Aramco and other assets. It will funnel part of this money into non-oil industries via vehicles such as PIF. Private firms will be encouraged to invest alongside the government with incentives such as soft loans.

Dew said discussions were still ongoing on the proposed merger with Alawwal Bank, which is 40 percent owned by Royal Bank of Scotland, but did not elaborate on the possible outcome.

He said the idea of a merger arose from the need for larger scale banks to meet the kingdom’s development plans under Vision 2030.

Alawwal and SABB said in April last year that they had agreed to start merger talks, but progress has been slow.

The merged entity would rank as the third-largest bank in Saudi Arabia with assets of $77.6 billion, behind National Commercial Bank and Al Rajhi Bank, Thomson Reuters data shows.

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