Bank credit to Saudi public, private sector enterprises reaches SR1.417 trillion

Updated 18 July 2016

Bank credit to Saudi public, private sector enterprises reaches SR1.417 trillion

JEDDAH: As oil revenue shrank on falling oil prices, the Kingdom, among other oil exporting Gulf countries, are increasingly taping capital markets in order to maintain and induce growth. This credit-induced growth comes at a time where widening fiscal deficits is adversely impacting sovereign credit ratings, according to Saudi Economic Review by the National Commercial Bank.
Moreover, with much of Saudi Arabian Monetary Agency’s (SAMA’s) monetary policy constrained to preserve the long-standing dollar peg, the Kingdom had to balance be- tween repatriating foreign assets and issuing debt.
In the month of April, the NCB report said, Saudi Arabia’s net foreign assets sank for the 15th consecutive month by 15.7 percent Y/Y, standing at a four-year low of SR2.14 trillion. As for debt issuance, the Kingdom began issuing sovereign development bonds in the second half of 2015 for the first time since 2007. The next move confirmed by the Saudi officials is the debut of the first international bond at about $15 billion possibly in July. The issuance will include several tenors up to 30 years in maturity and will be followed by an additional bond issuance later this year of a yet unspecified amount. Lower sovereign credit ratings will likely pressure the Kingdom’s debt pricing and place higher borrowing costs compared to other GCC countries. Early speculation suggests that the Kingdom’s 10-year yield could be around 4 percent which is higher than that of Qatar and Abu Dhabi which were issued earlier this year.
On the other hand, the National Transformation Program which was announced in June is considered to be credit-positive, and could lead to a swift recovery in the Kingdom’s credit rating which in turn would reflect on lower borrowing rates in the future.
As for the local credit market, the consolidated balance sheet of Saudi banks shows that growth in private sector credit remained strong at 10.4 percent Y/Y by the end of April. Bank credit to the private sector fell to single-digit growth rates during the second half of 2015, bottoming out in October of the same year at 5.5 percent Y/Y. However, since February of 2016, SAMA raised the cap on how much more lending banks can extend relative to their deposits. Previously, the loan-to-deposit ratio guidance limit stood at 85% but as banks started to face the prospects of a liquidity squeeze, SAMA allowed them to leverage an additional 5 percent to reach 90 percent which is still below the ceiling other GCC countries impose on their banks. In contrast, deposits marked the third consecutive monthly de- cline, shrinking by 1.7 percent Y/Y.
By the end of April, the NCB report said total bank credit extended to public and private sector enterprises amounted to SR1.417 trillion which is up 10.0 percent from a year ago. Total bank claims on the public sector marked the 13th month of decline, falling by 24.2 percent to SR250.5 billion.
As bank credit to the public sector does not exceed SR46.5 billion, the bulk of lending to governmental entities happens in the form of investments in government securities, bonds, and treasury bills.
Saudi banks’ holdings of SAMA bills dwindled by 72.3 percent Y/Y to SR64.2 billion, the largest annualized decline since October of 2005. On the other hand, the unutilized lending capacity from holding less SAMA bills helped banks absorb the government bond issuances which surged by 163.1 percent to SR139.9 billion.


Cirque du Soleil walks a tightrope through pandemic

Updated 35 min 40 sec ago

Cirque du Soleil walks a tightrope through pandemic

  • Suitors wage backstage battle to rescue debt-stricken Canadian circus icon
  • Among the potential bidders is former fire eater Guy Laliberte, who fouded the acrobatic troupe in 1984

MONTREAL: Its shows canceled due to the COVID-19 pandemic, an already heavily indebted Cirque du Soleil’s fight for survival has invited an intense backstage battle to try to save the Canadian cultural icon.

High on a list of potential suitors is former fire eater Guy Laliberte, who founded the acrobatic troupe in 1984 but later sold it.

“Its revival will have to be done at the right price. And not at all costs,” said the 60-year-old, determined not to see his creation sold to private interests.

The billionaire clown said after “careful consideration,” he decided “with a great team” to pursue a bid, but offered no details.

Under his leadership, the Cirque had set up big tops in more than 300 cities around the world, delighting audiences with contemporary circus acts set to music but without the usual trappings of lions, elephants and bears.

Then the pandemic hit, forcing the company in March to cancel 44 shows worldwide, from Las Vegas to Tel Aviv, Moscow to Melbourne, and lay off 4,679 acrobats and technicians, or 95 percent of its workforce.

Hurtling toward bankruptcy, the global entertainment giant and pride of Canada commissioned a bank in early May to examine its options, including a possible sale.

Meanwhile, shareholders ponied up $50 million in bridge financing for its “short-term liquidity needs.”

Laliberte, the first clown to rocket to the International Space Station in 2009, ceded control of the Cirque for $1 billion in 2015.

It has since fallen into the hands of American investment firm TPG Capital (55 percent stake) and China’s Fosun (25 percent), which also owns Club Med and Thomas Cook travel. The Caisse de depot et placement du Quebec (CDPQ) retains the last 20 percent.

The institutional investor, which manages public pension plans and insurance programs in Quebec, bought Laliberte’s last remaining 10 percent stake in the business in February, just before the pandemic.

Since 2015, the Cirque has embarked on costly acquisitions and renovations of permanent performance halls, while its creative spirit waned, according to critics in the Quebec press.

Meanwhile, it piled on more than $1 billion in debt.

Fearing that the Cirque would be “sold to foreign interests,” the Quebec government recently offered it a conditional loan of $200 million to help relaunch its shows as restrictions on large gatherings start to be eased worldwide.

But the agreement in principle is conditional on the Cirque headquarters remaining in Montreal and the province being allowed to buy US and Chinese stakes in the company at an unspecified time in the future, “at market value” and with “probably a local partner,” said Quebec Minister of the Economy Pierre Fitzgibbon.

“The state does not want to operate the circus, but the circus is too important to Quebec (to leave it to foreigners),” he said.

In addition to Laliberte, other prospective buyers include Quebecor, the telecoms and media giant of tycoon Pierre Karl Peladeau, whose opening lowball bid was outright rejected.

“It is essentially the value and reputation of the brand” that has piqued interest in the company, says Michel Magnan, corporate governance chair at Concordia University in Montreal.

But “as long as there are restrictions on gatherings of people, the future is not very rosy” for the Cirque, he said.

Several challenges await, according to Magnan.

“There were a lot of people working in all of these shows. Where are they now? What are they doing? How are they doing? In what shape are they, what state of mind?” he said.

“The more time passes, the more this expertise risks evaporating.”

Small consolation: The Cirque resumed its performances on Wednesday in Hangzhou, China, five months after a coronavirus outbreak in the city.