Global financial top brass descend on Riyadh

(From left:) Siemens CEO Joe Kaeser, IMF Managing Director Christine Lagarde and BlackRock Chairman Larry Fink are among the stellar corporate lineup attending the Future Investment Initiative in Riyadh. (Reuters)
Updated 24 October 2017
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Global financial top brass descend on Riyadh

RIYADH: A major conference hosted by the Public Investment Fund (PIF) gets underway in the Saudi capital today attended by some of the world’s top business leaders and money managers.
The Future Investment Initiative (FII) is being organized in the context of Saudi Vision 2030, the Kingdom’s ambitious blueprint for economic reform.
It is being held under the patronage of King Salman and under the leadership of Crown Prince Mohammed bin Salman, who will today welcome some 2,500 delegates to the event.
Dozens of the biggest names in global business are making the trip to Riyadh — among them IMF chief Christine Lagarde and BlackRock boss Larry Fink.
The pair will be among the speakers opening the plenary session of the conference which also includes Saudi Aramco CEO Amin Nasser.
The event will see “internationally-renowned business leaders and influencers discuss how the challenges of the future can be addressed,” said PIF Managing Director Yasir Othman Al-Rumayyan.
Attendees are set to grapple with the big themes of the global economy across a range of industries and against a backdrop of unprecedented economic reforms underway in the Kingdom.
“We see FII as a unique opportunity for the global community to bring together aspirational thinking around the future of the world economy with the realities of investment,” said Pedro Oliveira, Oliver Wyman’s regional managing partner.
“We are delighted to be partners to the PIF in driving that thinking around financial services, health care and life sciences as well as urban planning and infrastructure,” he added.
Other confirmed speakers at the event represent the leaders of major asset managers including Thomas Barrack, executive chairman of Colony NorthStar; Leon Black, chairman and CEO of Apollo Global Management; and Victor Chu, chairman and CEO of First Eastern Investment Group.
These top asset managers will be joined by speakers representing a range of sovereign wealth funds and pension funds.
Most of the important GCC sovereign wealth funds will also be represented at the event including Mahmood Hashim Al-Kooheji, CEO of Bahrain Mumtalakat Holding Company and Khaldoon Al-Mubarak, the CEO of Mubadala Investment Company.
The first day of the conference will begin with CNBC’s Andrew Ross Sorkin leading a panel of financial experts in debating the new social, economic and intellectual frameworks needed to drive global progress.
Another key session will examine breakthroughs in artificial intelligence, robotics, virtual reality, big data, social media, medical science, and smart infrastructure.
The event is also set to make headlines away from the main stage with major projects of the future on display as well as cutting -edge technology.
The first day of the investment conference will wrap up with energy executives discussing the technology expected to shape the future of the sector — with the keynote address set to be delivered by Saudi Energy Minister Khalid Al-Falih.
Other sessions will explore topics such as the future of the information economy, leadership and he age of uncertainty.
Global management consultancies from McKinsey, BCG and Oliver Wyman will also be in attendance — some of whom have been working on projects linked to the Kingdom’s economic transformation.
The gathering aims to explore the evolving role of sovereign wealth in driving the next wave of business, innovation, technology and investment.
Established in 1971 to invest in commercial project, the PIF has contributed to the establishment of numerous Saudi Arabian companies, supporting innovation, industrial diversification and non-oil sector development in the Kingdom.


Liquidity squeeze hits sukuk sector

Updated 12 December 2018
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Liquidity squeeze hits sukuk sector

  • US interest rate rises and the end of the Federal Reserve’s quantitative easing program have lessened dollar availability
  • Investors from developed markets are more reluctant to park their money in assets from further afield because the returns they can achieve nearer to home are increasing

BARCELONA: Shrinking liquidity as central banks rein in years of ultra-loose monetary policy is crimping both demand for sukuk as well as supply.
Last year, issuance of Islamic bonds, or sukuk, reached a record high of $95.7 billion, up from $68 billion in 2016, according to S&P Global Ratings, which forecasts 2018 issuance will total up to $80 billion.
US interest rate rises and the end of the Federal Reserve’s quantitative easing program have lessened dollar availability, while the European Central Bank’s decision to lower and then stop its own bond-buying program in December is exacerbating liquidity constraints.
“Liquidity that used to be channelled to the global sukuk market is becoming scarcer and more expensive,” said Dr. Mohamed Damak, senior director and global head of Islamic Finance (Financial Services Research) at S&P Global Ratings, who estimates Europe and the US provide 20-40 percent of sukuk investment.
“That will impact the capacity of sukuk issuers to the tap the sukuk market over the next 12 months.”
Investors from developed markets are more reluctant to park their money in assets from further afield because the returns they can achieve nearer to home are increasing in line with higher rates and a strong dollar.
“Whereas before when there was so much liquidity, investors were almost desperate in the hunt for yield and sukuk. Now, they’re a bit more discerning and spreads on emerging markets, including sukuk instruments, have started to widen,” said Khalid Howladar, managing director and founder of Dubai’s Acreditus, a boutique risk, ratings, regulatory and Islamic finance advisory practice. “You’ll see more discrimination coming into sukuk pricing.”
In the first nine months of 2018, sukuk issuance in Gulf Cooperation Council (GCC) countries totalled $26.9 billion, down from $39.8 billion in the prior-year period, according to S&P. GCC sovereign issuance fell by nearly half over the same period to $14.8 billion from $27.9 billion, although issuance by regional corporations rose 2 percent to $12.1 billion.
The decline in government sukuk issuance is partly due to the rebound in oil prices, analysts said, with crude now trading at more than $70; Gulf governments had historically funded their spending through energy receipts and conventional bank lending, with little need to issue debt, but the slump in oil prices from mid-2014 forced a rethink.
Saudi Arabia began issuing debt for the first time since the 1990s after falling into deficit and has now sold $11 billion of sukuk — $9 billion in April 2017 and $2 billion in September 2018, plus $41 billion of conventional bonds since 2016, according to Reuters. These have helped Saudi Arabia fund its budget shortfall, while the Kingdom has also spent some of its foreign reserves, which fell from 2.75 trillion riyals at 2014-end to 1.90 trillion riyals in September 2018.
Although now less of a necessity, Saudi Arabia and other Gulf governments may issue more sukuk do so in order to support their fledgling Islamic capital markets.
“Bahrain, Oman and to a lesser extent Saudi (Arabia) are still facing deficit pressures,” said Howaladar. “But nonetheless, the pressure is less and so that borrowing urgency has diminished.”
Bank lending has always dominated the market, but the private sector is increasingly keen on diversifying its funding sources so as to not be as dependent on banks, he said. “Globally, Islamic banks are growing faster than their conventional counterparts, so whether you want to do a sukuk or Sharia-compliant financing the bank market is still open,” added Howaladar. “Bond and sukuk markets get more attention, but banks are still able to offer Sharia-compliant financing for their customers.”
UAE sukuk issuance has grown in 2018, rising to $6.4 billion as of Sept. 23, versus $3.3 billion in the prior-year period, according to S&P. The country’s markets regulator this year issued new sukuk regulations that have helped bolster supply, said Raffaele Bertoni, head of fixed income investment at Kuwait-based Gulf Investment Corporation, a supranational financial institution co-owned by the six nations of the GCC.
A large part of the UAE’s 2018 issuance is from real estate companies seeking to optimize their financing structure with a better mix of sukuk and bank debt ahead of Dubai hosting the multibillion-dollar Expo 2020, he said.
“Several new real estate projects are in the last phase of completion, and sukuk represents an efficient and more convenient financing structure compared to conventional bonds or even bank loans,” Bertoni added.
Corporations that prefer sukuk funding due to religious considerations will continue to issue Sharia-compliant debt despite the growing expense, said Sharjil Ahmed, a Dubai-based Islamic finance specialist and fintech strategist.
“But other issuers who opted for sukuk because of attractive pricing may shift to wherever they can obtain cheaper funding,” he said.
As well as tightening liquidity, a lack of standardised Sharia regulations and geopolitical concerns have slowed sukuk issuance in 2018.