Al-Rajhi Capital plans sukuk push, sees better year for IPOs

Updated 22 January 2014
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Al-Rajhi Capital plans sukuk push, sees better year for IPOs

RIYADH: The investment banking arm of Saudi Arabia’s Al-Rajhi Bank, plans to expand its sukuk business, its chief executive said, tapping into heavy demand for Sharia-compliant products in the Kingdom.
Issuance of sukuk in Saudi Arabia has surged on the back of increased liquidity and comparatively low borrowing costs, and as corporates look to diversify their funding sources from the traditional mode of bank financing.
Corporates and state-owned entities in Saudi Arabia raised the equivalent of $15 billion from the sale of sukuk in 2013, compared with $11 billion in 2012 and just $2.8 billion in 2011, Gaurav Shah, CEO of Al-Rajhi Capital, said in an interview at his Riyadh office.
The state airports operator last year printed the largest-ever local currency sukuk deal worth the equivalent of $4.05 billion, and other well-known names including Saudi Binladin Group and Almarai completed riyal issues.
Shah said his firm, which has one of the largest asset management and brokerage businesses in the kingdom, planned to play a central role in underwriting, arranging and investing in sukuk.
“We see developing our sukuk capability across our businesses, and specifically investment banking, as a key priority. You cannot have a narrow telescopic view of the sukuk business,” said Shah, who joined the firm from Swiss lender Credit Suisse in 2009.
Riyadh-based Al-Rajhi Capital, formed in 2008, manages about SR30 billion ($8 billion) in its asset management business, a five-fold increase from 2009, Shah said, adding that the business focused on large institutions in the Kingdom such as endowments and insurance companies.
In 2014, the firm will concentrate on deploying existing funds rather than planning new fund launches, he said. It raised SR678 million last year from the launch of its second real estate income-generating fund.
“There is not much purpose in launching a flurry of products since we already have covered the main asset classes. At the end of the day, if you have a good product, it will sell.”
Al-Rajhi expects initial public offers of shares on the Saudi Arabian bourse to pick up pace in 2014 as equity markets recover and valuation multiples improve.
Saudi Arabia’s benchmark index rose 25.5 percent in 2013 on the back of improved economic performance and increasing risk appetite among investors.
Despite this, IPO activity in Saudi Arabia dropped last year. There were just five offers in 2013, raising $506.6 million, compared to the previous year which saw seven initial share sales worth $1.4 billion.
Saudi Arabia’s Al-Hokair Group, one of the largest entertainment and hospitality firms in the Middle East, plans to list on the Riyadh bourse in 2014, Reuters reported in November.
Health care and hospital chains in the Kingdom are also lining up to go public, tapping into heavy demand in the sector.
“Increased investor appetite for equities, and the fact that regulators want to further develop the equity markets, could make it a better year for IPOs in 2014,” Shah said.


Oil prices fall on expected output rise after OPEC deal

Updated 13 min 9 sec ago
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Oil prices fall on expected output rise after OPEC deal

SINGAPORE: Brent crude oil prices fell over 1.5 percent on Monday as traders factored in an expected output increase that was agreed at the headquarters of the Organization of the Petroleum Exporting Countries (OPEC) in Vienna on Friday.
Brent crude futures, the international benchmark for oil prices, were at $74.21 per barrel at 0343 GMT, down 1.8 percent from their last close.
US West Texas Intermediate (WTI) crude futures were at $68.40 a barrel, down 0.3 percent, supported more than Brent by a slight drop in US drilling activity.
Prices initially jumped after the deal was announced late last week as it was not seen boosting supply by as much as some had expected.
OPEC and non-OPEC partners including Russia have since 2017 cut output by 1.8 million barrels per day (bpd) to tighten the market and prop up prices.
Largely because of unplanned disruptions in places like Venezuela and Angola, the group’s output has been below the targeted cuts, which it now says will be reversed by supply rises especially from OPEC leader Saudi Arabia. Although analysts warn there is little space capacity for large-scale output increases.
“Several ministers suggested that (rises) would correspond to a 0.7 million bpd increase in production,” said US bank Goldman Sachs following the announcement of the agreement, although it added that were risks “that Iran production may be even lower than we assume” and that its output could fall further due to looming US sanctions.
Still, Britain’s Barclays bank said OPEC’s and Russia’s commitments would take “the market from a -0.2 million bpd deficit in H2 2018 to a 0.2 million bpd surplus.”
Energy consultancy Wood Mackenzie said the agreement “represents a compromise between responding to consumer pressure and the need for oil-producing countries to maintain oil prices and prevent harming their economies.”
In the United States, US energy companies last week cut one oil rig, the first reduction in 12 weeks, taking the total rig count to 862, Baker Hughes said on Friday.
That put the rig count on track for its smallest monthly gain since declining by two rigs in March with just three rigs added so far in June, although the overall level remains just one rig short of the March 2015 high from the previous week.