Saudi government debt begins trading on Tadawul

The development of local and international debt markets runs alongside the Kingdom’s efforts to boost foreign participation in its equity markets. (AFP)
Updated 08 April 2018
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Saudi government debt begins trading on Tadawul

  • Saudi stock exchange begins trading local currency government bonds
  • The trading of 45 government debt instruments worth $54 billion has been officially launched
London/Dubai: The Saudi stock exchange began trading local currency government bonds on Sunday, in the latest move by authorities to deepen the Kingdom’s capital markets.
The trading of 45 government debt instruments worth SR204 billion ($54 billion) was officially launched at a press conference yesterday by the Tadawul’s CEO Khalid Abdullah Al-Hussan and Fahad Al-Saif, president of Saudi Arabia’s Debt Management Office.
Al-Hussan described the listing of government debt instruments as “an important step in the development plan of the sukuk and bond market, which is in line with the Kingdom’s Vision 2030.
“Listing government debt instruments will undoubtedly deepen the sukuk and bond market, which in turn will help boost liquidity in the secondary market and make debt instruments more attractive for both investors and issuers.”
Debt with maturities of five, seven and 10 years are available to trade on the exchange, including floating- and fixed-rate bonds and Islamic instruments.
The Tadawul’s move is part of a strategy by the country’s economic policymakers to make financial debt instruments more tradeable in the expectation that they will fill a gap in the Kingdom’s capital markets.
“It’s still early days, but the longer-term potential is significant,” said M Nayal Khan, the head of institutional sales trading at Saudi Fransi Capital.
“These products were historically traded among local treasury desks; they’re now available to retail investors as a means to diversify the risk on their existing portfolios, i.e. away from real estate and highly speculative equities and into KSA government debt instead.”
Local investors are the principle target for the debt instruments, said Khan, with foreign investors more likely to trade in dollar-denominated Saudi debt.
Saudi government departments have been encouraged to raise more capital via bond issuance, but the market for such paper has not been very liquid, with investors finding it difficult to trade bonds in the secondary markets.
 
It is hoped that the transparent pricing of government debt on the exchange will create a benchmark for future issuances, thereby encouraging Saudi corporates to issue bonds and reduce their reliance on bank lending.
“The move to list 45 (instruments) on Tadawul will increase marketability and give the Kingdom a domestic debt profile that can be used to assess the creditworthiness and ratings of its local issuers,” said one financial expert yesterday in Riyadh, who asked not to be named.
The strategy to develop a local secondary debt market goes hand in hand with the moves to develop sovereign international debt markets to tap global investor appetite for Saudi bonds, part of the financial strategy to compensate for falling oil revenue since the price of crude began falling in the summer of 2014.
The Kingdom sold $39bn of sovereign bonds in 2017 in a mix of shariah-compliant and conventional instruments, following a record $17.5bn sovereign bond issued in 2016.
Investors expect more big global issues some time this year, following a refinancing of an earlier $10bn bond. The trend toward international bond sales looks certain to continue. The ministry of finance has set a debt ceiling of 30 percent of GDP in its efforts to wipe out the fiscal deficit by 2023, while the current level is about 17.5 percent.
 
The move is all part of a strategy to modernize and streamline the Saudi financial sector. Private corporations in Saudi Arabia have traditionally been more reliant on bank borrowing to meet capital expenditure requirements and fund expenditure.
The practice of “name lending”, in which banks advance loans to corporate borrowers on the back of their family backing and reputation, has fallen into disrepute after the global financial crisis.
The development of local and international debt markets runs alongside the Kingdom’s efforts to boost foreign participation in its equity markets.
Saudi stocks will be included in FTSE Russell’s emerging market index next March, a move expected to attract billions of dollars of investment from around the world.
International banking institutions have been rushing to enter the Kingdom to take advantage of the opportunities presented by the Vision 2030 plan to transform the economy away from oil dependency.
Many banks, including American giants Goldman Sachs and Citibank, have been ramping up their presence in Riyadh in anticipation of the new business to come from the economic diversification strategy.

Decoder

Saudi companies currently rely on bank lending more than corporate debt issuances. A secondary market in government debt may encourage firms to issue more bonds and sukuk

FASTFACTS

$39bn

Saudi Arabia sold $39 billion of sovereign bonds in 2017, after tapping international debt markets for the first time in 2016


Korean Air chief indicted for embezzlement

Updated 36 sec ago
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Korean Air chief indicted for embezzlement

SEOUL: The head of South Korean flag carrier Korean Air — whose family have been embroiled in multiple scandals including one involving macadamia nuts — was indicted Monday on charges of embezzling tens of millions of dollars and other offenses.
Prosecutors charged Cho Yang-ho with embezzling more than 20 billion won ($18 million) and unfairly awarding contracts to companies controlled by his family members, according to Yonhap news agency.
The super-wealthy owners of chaebols — the sprawling conglomerates that dominate the world’s 11th-largest economy — often attract controversy, but a series of scandals have made the Cho family one of the most notorious in South Korea.
Cho is the chairman of Hanjin Group, which includes Korean Air and used to own the now-bankrupt Hanjin Shipping line.
He was also head of the organizing committee for the 2018 Pyeongchang Winter Olympics until stepping down two years before the Games.
The 69-year-old is also accused of taking 152 billion won from the state insurance agency in medical care benefits by illegally running a pharmacy under a borrowed name.
Initially Cho was accused of evading inheritance tax of around 61 billion won when his father, Hanjin’s founder, died in 2002, but prosecutors said the statute of limitations had expired in 2014.
The date for Cho’s trial was not set and he was not detained ahead of the proceedings.
His two daughters, who held management positions at Korean Air, previously became viral sensations for temper tantrums dubbed the “nut rage” and “water rage” scandals, forcing Cho to issue a public apology and remove them from their posts.
The elder, Cho Hyun-ah, made global headlines in 2014 for kicking a cabin crew chief off a Korean Air plane after she was served macadamia nuts in a bag rather than a bowl. She later served a short prison sentence.
Earlier this year, her younger sister Cho Hyun-min was accused of throwing a drink at an advertising agency manager’s face in a fit of rage during a business meeting. She was not indicted as the victim did not want to press charges.
Their mother, Lee Myung-hee, has been questioned by police several times in connection with allegations of assault against her employees including cursing, kicking, slapping and even throwing a pair of scissors.
Cho himself has already had brushes with the law, receiving a suspended jail sentence for tax evasion in 2000 and awaiting a separate trial for diverting 30 billion won of company funds for renovating his own house.