KSA mortgage lending up 9% in Q4 of 2012

Updated 09 June 2013
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KSA mortgage lending up 9% in Q4 of 2012

Activity in the Saudi project market appears to be slowing somewhat. However, the most recent PMI suggests firms in the nonoil sector are continuing to expand, and retail sales have continued to hold up well. There are signs that the Ministry of Housing is preparing to involve private developers more closely in the bid to address the country's housing deficit, according to Samba Financial Group’s Economic Monitor for June.
Quarterly data from SAMA (Saudi Arabian Monetary Agency) sheds light on the direction of bank lending. The most striking feature of the data is the five percent quarter-on-quarter contraction in lending to the construction sector in the first quarter. The data are not seasonally adjusted, but the first quarter contraction is much larger than that registered in the same period of 2012.
This suggests that nonoil investment has slowed significantly so far this year-supported by anecdotal evidence of a fairly stagnant projects market. There are two likely explanations: First, banks are refocusing on retail lending, where margins are much more lucrative. Second, and more importantly, the flow of projects appears to have slowed. Samba had expected delayed projects from 2012 to be released in the first half of this year, but this does not seem to have happened, and it might be that the lower oil price environment has begun to crimp the pace of investment activity.
The subdued state of bank lending to construction is in contrast to the strong pace of consumer lending. The Samba report said lending to consumers accelerated markedly in 2012, averaging around 5.5 percent quarter-on-quarter growth in the past two years. An increasingly important element of consumer lending is mortgages. The passage of the mortgage law in July last year has not sparked a surge in lending — final elements of the accompanying legislation are still awaited—but there has still been a notable uptick, with a quarter-on-quarter gain of nearly 9 percent in the final quarter of 2012.
For the moment, banks are continuing to focus on lending to upper- and upper-middle income Saudis.
Affordability also reflects the scarcity of supply, an issue that the Ministry of Housing is struggling to resolve. The ministry was set up in 2011 with a brief to oversee the delivery of 500,000 new housing units in five years. Two years on, and progress has been slow. A recent statement from the housing minister indicated that his ministry is working on a regulatory framework to encourage a greater role for the private sector in meeting the Kingdom's housing needs.
One key issue is the scarcity of buildable land. Private developers have long complained that the thinly traded and expensive land market is a major constraint: currently land constitutes about half the cost of building a house, compared to 25 percent in Japan, for example, which is a much more densely populated country than Saudi Arabia.
While the housing market clearly has structural rigidities, the bank report said broader fundamentals underpinning consumer lending remain firm. Population growth has averaged around 3.1 percent over the past decade, with the Saudi population (which consumes more than expatriates) growing at around 2.4 percent a year.
Despite this, GDP per capita has surged, growing by an annual average of almost 12 percent over the past decade, according to Samba estimates, reaching just shy of $ 25,000 in 2012, compared with less than $ 10,000 a decade earlier (per capita GDP has been volatile, reflecting changes in nominal oil sector GDP).
Meanwhile, the slowdown in the projects market has not yet been transmitted to the purchasing managers' index (PMI) though the pace of activity appears to have slowed. The overall PMI eased to 58 from 58.9 in March. Given that any number above 50 denotes expansion, the Saudi nonoil economy is clearly still in good shape, certainly when judged against global PMIs, most of which are struggling to break 50. Output in April continued at a good pace, even increasing compared to March, though new orders cooled a little. The latter is an important leading indicator and warrants close monitoring. The slowdown seems largely to have been registered on the employment index, with the index dipping to just 50.2 compared to 53.4 the previous month. This may well reflect the impact of tougher government policies toward illegal workers, as well as the closely related impact of a more assertive Saudiization policy. The net effect has been that many firms, especially in the construction sector, have been obliged to shed staff, which has clearly weighed on the index.
The report said consumer price inflation appears contained. The index has recently been rebased to 2007, resulting in a sharply lower headline figure. The April CPI increased by 4 percent compared to a year earlier, up from 3.6 percent at the end of 2012.
According to Samba, inflationary pressures to remain broadly contained, thanks to a strong dollar, though a mild increase is likely in the next couple of years as global commodities prices gain strength with the general recovery in economic activity.


NMC Health’s $450 million bond to boost Saudi expansion

Updated 23 April 2018
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NMC Health’s $450 million bond to boost Saudi expansion

  • The new capital structure — which will feature a mixture of unsecured bank and bond financing — will aid the company’s continued growth into Saudi Arabia.
  • The company first secured a foothold in the Kingdom in 2016 after acquiring a 70 percent stake in As Salama Hospital in Al-Khobar.

LONDON: The UAE-based private health care operator NMC Health has launched a $450 million senior unsecured guaranteed bond to help pay off an existing $1 billion bridge facility and support its expansion plans into Saudi Arabia.

The earlier bridging loan was part of the $2 billion capital structure refinancing put in place at the start of the year, the company said.

The bond is due in 2025 and is convertible into ordinary shares. JP Morgan is the sole bookrunner on the issuance. Bonds will have a fixed coupon rate of 1.875 percent, paid semi-annually.

The new capital structure — which will feature a mixture of unsecured bank and bond financing — will aid the company’s continued growth into Saudi Arabia, with NMC having been one of the first private health care providers to capitalize on the Saudi government’s health care privatization plans.

The company first secured a foothold in the Kingdom in 2016 after acquiring a 70 percent stake in As Salama Hospital in Al-Khobar.

Since then, NMC won regulatory approval last September for a new long-term care facility, the Chronic Care Specialty Medical Center, in Jeddah. It is though to be the first greenfield medical facility in the Kingdom to be set up by a non-Saudi company.

Earlier this year, NMC said it acquired an 80 percent stake in the Riyadh-based Al-Salam Medical Group.

NMC’s acquisition-led expansion strategy aims to ensure the company retains its recently-won place on London’s FTSE 100 index. It was one of the first Middle Eastern companies to join the index when it qualified last September. It first listed on the London Stock Exchange in 2012.

The company posted strong growth in the last year, reporting $209.3 million in net profit for 2017, an increase of 38.2 percent on the previous year. The company paid out a total of $641 million in acquisitions last year.

“2017 proved to be a year of tremendous achievements for NMC,” said the firm’s chief executive Prasanth Manghat, in a statement in March.

NMC also secured secured its first public ratings of BB+ with a stable outlook from S&P on April 20, while Moody’s gave the firm rating of Ba1 with a stable outlook on April 20, 2018. The bonds are not expected to be rated.

“The company continues to strive to meet self-imposed standards that are higher when compared to what is expected of it by various regulators. This approach supports in turn its resilient business model, loyal customer base, strong brand recognition and market leading position,” according to a statement from Moody’s Investors Service.

Investors are so far reacting favorably to NMC’s strategy, with the company closing at a record high on April 20, according to Bloomberg reports, with a market value of $10.8 billion.

The company is now one of 24 equities in the region to have achieved a market capitalization of more than $10 billion, the report said.

Healthcare is seen as a lucrative sector in the Gulf due to its relatively wealthy population becoming increasingly at risk of problems related to obesity and diseases such as type 2 diabetes.