Gulf ratings untarnished by growing GRE debt

The sovereign ratings of Gulf countries remain unaffected by recent and planned debt-raising activities of government-related entities. Above, an aerial view of Abu Dhabi Corniche. (Reuters)
Updated 21 November 2018
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Gulf ratings untarnished by growing GRE debt

  • Head of equity research at Exotix Capital Hasnain Malik: Investors familiar with the Gulf fully expect debt issuance by governments and their related enterprises to increase
  • Hasnain Malik: The generally very strong financial position of sovereigns in the Gulf and their defensible exchange rates has provided a relative haven for global fixed income investors

LONDON: The sovereign ratings of Gulf countries remain unaffected for now by both the recent and planned debt-raising activities of government-related entities, according to S&P Global.
The agency published a research note on Tuesday following investor concerns about the implications of significant amounts of debt being raised by government-backed entities such as investment funds and oil companies.
Saudi Arabia’s Public Investment Fund (PIF) raised an $11 billion international syndicated loan in September this year, while in July, Saudi Aramco said it might consider acquiring a strategic stake in Saudi Basic Industries Corp. (Sabic) from PIF. This potential acquisition is likely to require funding of up to $70 billion, said S&P Global.
“So far, the level of GRE debt and the potential for these contingent liabilities — obligations that have the potential to materialize on a government’s balance sheet or more broadly affect its fiscal profile — being realized has not led to negative rating actions for Gulf Cooperation Council (GCC) sovereigns,” the S&P report said.
“If contingent liabilities do materialize, they have the potential to negatively affect sovereign ratings,” it added, using Mozambique as an example of where the restructuring of a government-guaranteed GRE loan led to a downgrade of the sovereign rating in 2016.

 

Hasnain Malik, head of equity research at Exotix Capital, said that most investors anticipated the Gulf region would ramp up debt-raising activities in the near future.
“Investors familiar with the Gulf fully expect debt issuance by governments and their related enterprises to increase. This is in line with their stated strategies,” he said.
“The more the debt that is taken on by government-related enterprises, the more that it will be lumped together with debt taken out by the sovereign in order to assess overall risk. But this is nothing new. Past discussions of the overall debt position of ‘Dubai Inc’ or ‘Qatar Inc’ have grappled with the issue of explicit and implicit government guarantees,” he said.
Rating agency Moody’s said last month that the multibillion-dollar PIF loan demonstrated that Saudi Arabia had a “strong ability to raise alternative funding in the capital markets,” according to its Oct. 17 report.
It then warned that a “significant reliance on broader public- sector borrowing to fund the diversification and development agenda would over time increase contingent liability risks for the sovereign.”
Malik said the region had retained its appeal to investors so far despite the potential rising GRE debt.
“In what has been a tougher environment for emerging market debt this year, the generally very strong financial position of sovereigns in the Gulf and their defensible exchange rates has provided a relative haven for global fixed income investors,” he said.
“The imminent inclusion into JP Morgan’s mainstream global indices of debt will likely put the region closer to the center of the average emerging market fixed income investor,” he said.
S&P Global rates 24 GREs in the Gulf region, with most of the companies enjoying the same rating as the sovereign.

FASTFACTS

S&P Global rates 24 GREs in the Gulf region.


Saudi Arabia aims to achieve e-payment target of 70%

Updated 22 February 2019
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Saudi Arabia aims to achieve e-payment target of 70%

  • Reform plan seeks cashless society
  • E-payments could exceed $22bn in next four years

RIYADH: Saudi Arabia wants to achieve an e-payment target of 70 percent by 2030, a banking official told Arab News on Thursday, as the country moves toward becoming a cashless society.

Talat Hafiz, from the Media and Banking Awareness Committee for Saudi Banks, said online or cashless transactions were part of the Vision 2030 reform plan.

The Financial Sector Development Program (FSDP) was one of the initiatives to support the economic growth goals of Vision 2030, he added.

“Basically it is to transfer Saudi society from being heavily cash dependent in buying goods and services to a cashless society using digital and electronic payment,” he told Arab News. “One of the FSDP’s main targets is to increase and improve the percentage of non-cash utilization, from 18 percent in 2016 to 28 percent in 2020. However, the goal will increase of course with the target to 70 percent by 2030.”

Hafiz, in an Arab News column published earlier this month, said the Saudi Arabian Monetary Authority (SAMA) had been encouraging electronic payments and settlements in order to reduce the reliance on cash.

SAMA had introduced a number of e-payment systems in the last two decades to help consumers and institutions, he wrote, such as the Saudi Arabian Riyal Interbank Express and the online bill payment portal SADAD.

Earlier this week Apple Pay was launched in the Kingdom, joining the cashless roster of payment methods available to Saudi consumers.

A cashback service operated by credit card companies, where a percentage of the amount spent is paid back to the cardholder, was introduced last year in Saudi Arabia.

An illustration of how direct debit works, courtesy of the Saudi Arabian Monetary Authority (SAMA).

“All of these efforts collectively from the SAMA side are to reach the ambitious goal of the FSDP.”

Hafiz explained that e-payments saved time and effort and allowed people to access service and goods around-the-clock. 

“This is basically why SAMA is very active and now we see SAMA and the National Payment System are responsible and leading (the country) toward a cashless society by achieving the target set by 2030.”

Last February the Amazon-owned Payfort online payments service registered a new company in Saudi Arabia.

According to the “Payfort State of Payments 2017” report, Saudi Arabia and the UAE are the fastest growing markets in the region for electronic payments.

The report estimates that Saudi Arabia conducted $8.3 billion of payment transactions in 2016, showing 27 percent year-on-year growth.

E-payments in the Kingdom are expected to double over the next four years to reach more than $22 billion, the report added.