Bloomberg News

Saudi Oil-Led Growth Attracts Standard Chartered, Barclays

April 17, 2012

The government’s $500 billion spending plan to upgrade infrastructure and create jobs is encouraging companies to invest in the world’s top oil exporter, pushing sales of Islamic bonds from the country this year to a record $6.55 billion, data compiled by Bloomberg show. Photographer: Waseem Obaidi/Bloomberg

The government’s $500 billion spending plan to upgrade infrastructure and create jobs is encouraging companies to invest in the world’s top oil exporter, pushing sales of Islamic bonds from the country this year to a record $6.55 billion, data compiled by Bloomberg show. Photographer: Waseem Obaidi/Bloomberg

Standard Chartered Plc (STAN), the U.K. bank that depends on Asia for most of its profit, and Barclays Plc (BARC) are expanding in Saudi Arabia as oil above $100 a barrel and record bond sales bolster earnings in the biggest Arab economy.

“We’d be crazy to limit ourselves to a handful of bankers when we can see oil prices are going to sustain the Saudi economy for the foreseeable future,” Rory Gilbert, the head of Middle East and North Africa at London-based Barclays’s wealth management unit, said in an interview this week in Dubai. “In four or five years, we’ll have a much broader presence in Saudi Arabia.”

Barclays is expanding operations to target more millionaires, according to Gilbert. Standard Chartered, also based in London, started a capital markets office in Saudi Arabia, Viswanathan Shankar, the bank’s chief executive officer for the Middle East, Europe, Africa and the Americas, said in an interview at a Bloomberg conference in Doha, Qatar yesterday.

The government’s $500 billion spending plan to upgrade infrastructure and create jobs is encouraging companies to invest in the world’s top oil exporter, pushing sales of Islamic bonds from the country this year to a record $6.55 billion, or about 43 percent of total bond offerings in the Persian Gulf, data compiled by Bloomberg show. Bank lending to consumers and private businesses rose at the fastest pace since 2009 in February, helping boost first-quarter profits of the kingdom’s banks above analysts’ estimates.

Expanding Economy

The banks join Paris-based Credit Agricole SA (ACA), which owns a stake in Banque Saudi Fransi (BSFR), and London-based HSBC (HSBA) Holdings Plc, owner of a stake in Saudi British Bank. JPMorgan Chase & Co. (JPM:US) named Abdulaziz Al Helaissi in Riyadh, Saudi Arabia to head of its global corporate bank in the region this month.

Bank of America Merrill Lynch, HSBC and Standard Chartered raised their 2012 economic growth forecasts for Saudi Arabia since March. Gross domestic product may expand more than 6 percent this year, Finance Minister Ibrahim Al-Assaf said in January. The economy grew 6.8 percent in 2011. Crude oil has climbed 4.4 percent in New York this year and has traded at an average $103.03.

HSBC cemented its position as the region’s top bond underwriter, leading the 15 billion-riyal ($4 billion) sukuk sale of the state-run General Authority of Civil Aviation in January. The bank was also a manager of Saudi Electricity’s $1.75 billion dollar-denominated sukuk.

Of the $7.47 billion worth of bonds HSBC has arranged so far this year, 74 percent, or $5.54 billion, have been from companies based in Saudi Arabia, data compiled by Bloomberg show. Saudi sales helped HSBC edge out Standard Chartered in 2011 to remain the region’s top bond underwriter for a fourth year in five, the data show.

‘Swing Factor’

HSBC’s stake in Saudi British Bank (SABB) makes it more difficult for other international lenders to compete over Saudi debt offerings, Standard Chartered’s Shankar said in an interview at a Bloomberg conference in Doha, Qatar, yesterday.

“Unless we have a large local presence in Saudi Arabia, which HSBC has, it’s going to be difficult to dislodge” the London-based bank from its position, he said. “Saudi is a swing factor,” Shankar said. “Frankly, there’s nothing I can do about it. We are boosting our presence in Saudi, but given the fact that Saudi British has been there for some time, it’s going to be difficult.”

Saudi British Bank posted a 14 percent increase in first quarter profit to 854 million riyals, beating the average estimate of six analysts for a profit of 753 million riyals, according to data compiled by Bloomberg. Al Rajhi Bank (RJHI), the kingdom’s largest lender by market value, reported an 18 percent jump in profit to 2 billion riyals, topping analysts’ estimates.

License Delays

Saudi authorities have put “quite restrictive licensing and branch opening processes” in place, which can makes it more difficult for international banks to expand into the kingdom, said Reinhold Leichtfuss, the leader of financial institutions at The Boston Consulting Group Middle East in Dubai.

“A number of banks have applied for such licenses but the process can take years,” he said in a phone interview yesterday. “Having private bankers fly into the country is a much easier thing to do.”

Through its capital markets license in the kingdom, Standard Chartered seeks to “work with Saudi companies in terms of their long-term funding plans,” Shankar said. “We are working with a whole slew of Saudi corporate and financial institutions in terms of their business, particularly outside” the country, he said.

Market Opening

Banks and financial institutions are also gearing up for the possibility that Saudi Arabia will allow foreign investors to directly access its stock market. The process will be gradual and won’t have a negative effect on trading, the official Saudi Press Agency reported on April 3, citing Capital Market Authority Chairman Abdulrahman al-Tuwaijri.

Non-resident foreigners are permitted to trade through share-swap transactions and exchange-traded funds, with the market regulator approving the first exchange-traded fund in March 2010. The government allowed citizens of neighboring Gulf countries to buy and sell local shares in 2007.

The benchmark Tadawul All Share Index (SASEIDX) has risen 17 percent this year after losing 3.1 percent in 2011. The gauge closed 3.2 percent higher at 7,511.72 today in Riyadh.

“Saudi has been a target for many banks for a number of years,” Leichtfuss said. “If you want to build a position in the Middle East, Saudi is the number one in terms of market size.”

To contact the reporters on this story: Stefania Bianchi in Dubai at sbianchi10@bloomberg.net; Alaa Shahine in Dubai at asalha@bloomberg.net; Dana El Baltaji in Dubai at delbaltaji@bloomberg.net

To contact the editor responsible for this story: Claudia Maedler at cmaedler@bloomberg.net


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