Banks eager to raise long term dollar funding after Banque Saudi Fransi’s successful $650m issue
Banks in Saudi Arabia are expected to launch a raft of bond issues over the coming year following Banque Saudi Fransi’s successful $650m issue in late March.
Executives at several banks in the kingdom say they expect banks to look at bond issues to raise long term dollar-denominated funding to help banks fund project lending for the country’s infrastructure developments.
National Commercial Bank (NCB), the biggest bank in Saudi Arabia by assets, is looking at a potential bond issue later this year to refinance an existing $700m bond that matures in October.
“We are looking at our funding requirements, and we also want to extend the maturity of our dollar funding base,” says Faisal al-Sakkaf, the bank’s chief financial officer.
He says the bank is currently looking at a bond issue, a private placement, or raising long-dated deposits, to help bring more long-term dollar funding into the bank. “This is in the spirit of mobilising our resources to support the project finance sector,” adds Al-Sakkaf.
Suliman al-Gwaiz, deputy chief executive of Riyad Bank, says he expects to see more issuance from Saudi banks this year. Speaking about Riyad Bank specifically, he says, “We do not have any maturities to refinance this year, but we are actively discussing options and what we need to do to maintain our liquidity ratios.”
The Banque Saudi Fransi bond issue attracted an order book of more than $3bn, before the bank decided to issue a bond of only $650m. The bond was priced at 175 basis points over the mid-swap rate, making it one of the cheapest prices on bank bonds issued from the region this year. National Bank of Abu Dhabi (NBAD) priced its bond issue at 180 basis points above mid-swaps.
Several other banks are rumoured to be looking at following Banque Saudi Fransi’s move to tap the capital markets. While banks in Saudi Arabia are awash with local currency liquidity, they typically are less keen to lend in dollars for long periods.
The majority of recent projects in the kingdom have been funded by Saudi banks with local currency loans, despite most project sponsors having a preference for borrowing in dollars. Phillippe Touchard, chief financial officer at Banque Saudi Fransi, speaking of the rationale behind the bank’s bond issue, says, “We had to look at our liquidity in two ways. We are extremely cash rich in and liquid in local currency, but we also needed to look at our dollar assets versus our liabilities.”
“We don’t want to be stuck lending long and borrowing short,” he adds.
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