Debut euro bond ‘highlights Kingdom’s market strength’

Finance Minister Mohammed Al-Jadaan said the euro-denominated issue comes as part of efforts by the PDMO to provide the Kingdom with the best possible short, medium and long-term financing costs. (Reuters)
Updated 04 July 2019
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Debut euro bond ‘highlights Kingdom’s market strength’

  • Mohammed Al-Jadaan: ‘Some of the advantages of the euro bond offering by the Kingdom are to increase investor diversification, as some investors invest only in the euro currency’
  • Al-Jadaan: ‘The high demand showed that Saudi Arabia’s economic strength enables it to enter markets at any time and, in the long term, to diversify sources of funding’

RIYADH: The successful pricing of Saudi Arabia’s first euro-denominated bond confirms the Kingdom’s leading position in regional and international stock markets, Finance Minister Mohammed Al-Jadaan said.

Al-Jadaan said the euro-denominated issue — part of the Saudi Arabia’s international program for issuing debt instruments — comes as part of efforts by the Public Debt Management Office (PDMO) to provide the Kingdom with the best possible short, medium and long-term financing costs with risks consistent with its financial policies.

These policies aim to optimize state assets and innovative financing, as well as ensure the Kingdom’s access to international markets and fair pricing, he said.

The minister said the PDMO has received subscription applications in excess of €13.5 billion ($14.7 billion), highlighting strong demand from investors in the EU, as well as the confidence European investors have in the Saudi government’s securities.

The PDMO managed to narrow the range of pricing until it reached a steady yield of 0.78 percent in the eight-year segment and 2.04 percent in the 20-year segment, Al-Jadaan added.

“Some of the advantages of the euro bond offering by the Kingdom are to increase investor diversification, as some investors invest only in the euro currency,” he said. “The high demand showed that Saudi Arabia’s economic strength enables it to enter markets at any time and, in the long term, to diversify sources of funding.”

Al-Jadaan said that the PDMO at the Finance Ministry carried out a promotional campaign in eight European cities  — London, Paris, Milan, Frankfurt, Amsterdam, the Hague, Zurich and Munich — that included several meetings during which 77 European investors were interviewed.

The total amount of the offering was €3 billion, divided into two tranches as follows: €1 billion for eight-year bonds maturing in 2027, and €2 billion for 20-year bonds maturing in 2039.

Welcoming the decision, leading Saudi economist Talat Zaki Hafiz said: “I believe it is prudent action from the Saudi government to raise bonds in different currencies.”

He said tapping new debt markets will serve the Kingdom’s interest in terms of competitiveness — pricing, and terms and conditions — as well as satisfying its financial needs.

On the likelihood of new bond issue, Hafiz said it will depend on the government plan to finance any deficit in its budget.

“If the intention of the government (is) to borrow, it still can do so due to its excellent credit ratings and the low debt/GDP ratio, the lowest among the G20 members,” Hafiz said.

Talat said that investor appetite for Saudi bonds is high.

“The international debt markets have always valued, greatly appreciated and welcomed investing in Saudi Arabia’s bonds due to its excellent credit ratings announced by reputable international credit agencies, such as Fitch and S&P,” he said.


Debut of China’s Nasdaq-style board adds $44bn in market cap

Updated 9 min 2 sec ago
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Debut of China’s Nasdaq-style board adds $44bn in market cap

  • Activity draws attention away from main board

BEIJING: Trading on China’s new Nasdaq-style board for homegrown tech firms hit fever pitch on Monday, with shares up as much as 520 percent in a wild debut that more than doubled the exchange’s combined market capitalization and beat veteran investors’ expectations.

Sixteen of the first batch of 25 companies — ranging from chip-makers to health care firms — increased their already frothy initial public offering (IPO) prices by 136 percent on the STAR Market, operated by the Shanghai Stock Exchange.

The raucous first day of trade tripped the exchange’s circuit breakers that are designed to calm frenzied activity. The weakest performer leapt 84.22 percent. In total, the day saw the creation of around 305 billion yuan ($44.3 billion) in new market capitalization on top of an initial market cap of around 225 billion yuan, according to Reuters’ calculations.

“The price gains are crazier than we expected,” said Stephen Huang, vice president of Shanghai See Truth Investment Management. “These are good companies, but valuations are too high. Buying them now makes no sense.”

Modelled after Nasdaq, and complete with a US-style IPO system, STAR may be China’s boldest attempt at capital market reforms yet. It is also seen driven by Beijing’s ambition to become technologically self-reliant as a prolonged trade war with Washington catches Chinese tech firms in the crossfire.

Trading in Anji Microelectronics Technology (Shanghai) Co. Ltd., a semiconductor firm, was briefly halted twice as the company’s shares hit two circuit breakers — first after rising 30 percent, then after climbing 60 percent from the market open.

HIGHLIGHTS

• 16 of 25 STAR Market firms more than double from IPO price.

• Weakest performer gains 84 percent, average gain of 140 percent.

• STAR may be China’s boldest attempt at capital market reforms yet.

The mechanisms did little to keep Anji shares in check as they soared as much as 520 percent from their IPO price in the morning session. Anji shares ended the day up 400.2 percent from their IPO price, the day’s biggest gain, giving the company a valuation of nearly 242 times 2018 earnings.

Suzhou Harmontronics Automation Technology Co. Ltd., in contrast, triggered its circuit breaker in the opposite direction, falling 30 percent from the market open in early trade before rebounding. But by the market close, the company’s shares were still 94.61 percent higher than their IPO price.

Wild share price swings, partly the result of loose trading rules, had been widely expected. IPOs had been oversubscribed by an average of about 1,700 times among retail investors.

The STAR Market sets no limits on share prices during the first five days of a company’s trading. That compares with a cap of 44 percent on debut on other boards in China.

In subsequent trading sessions, stocks on the new tech board will be allowed to rise or fall a maximum 20 percent in a day, double the 10 percent daily limit on other boards.

Regulators last week cautioned individual investors against “blindly” buying STAR Market stocks, but said big fluctuations were normal.

Looser trading rules were aimed at “giving market players adequate freedom in the game, accelerating the formation of equilibrium prices, and boosting price-setting efficiency,” the Shanghai Stock Exchange (SSE) said in a statement on Friday.

The SSE added that it was normal to see big swings in newly listed tech shares, as such companies typically have uncertain prospects, and are difficult to evaluate.