HSBC Hired on Saudi Debt Deals as Bank Sees More IPOs

HSBC Holdings Plc, the Persian Gulf’s top bond underwriter, said it’s been hired on several debt and equity capital market deals in Saudi Arabia as local borrowers pursue financing for projects and infrastructure.

The London-based bank is helping Saudi borrowers in the power and utility, food and financial sectors, Fahad Al Saif, head of capital markets and corporate finance for HSBC in the country, said by telephone. The bank also expects “a lot of activity” in Saudi initial public offerings in 2014, he said.

Saudi Arabia, which approved a $219 billion budget this year, is tendering contracts to build roads, railways and ports as it seeks to improve its infrastructure and boost employment after protests toppled leaders across the Middle East. King Abdullah unveiled a $130 billion stimulus plan in 2011.

“HSBC has several debt capital market mandates in the pipeline for the rest of the year and first quarter of 2014,” Al Saif said in the interview, without giving names. “Sectors such as transport need financing. Port companies, railways and airlines are looking to do this either through banks or sukuk.”

Al Saif said that he expects an additional 10 billion Saudi riyals ($2.7 billion) of sukuk, or Islamic bonds which comply with the ban on interest, to be issued before the end of the year in Saudi Arabia and a similar amount in the first quarter.

Islamic Debt

Saudi Arabian companies have raised $12 billion through Islamic debt sales so far this year, up from $8.8 billion a year earlier, according to data compiled by Bloomberg. HSBC helped arrange $4.5 billion, or 37 percent, of sales in the Kingdom, down from 79 percent a year earlier, the data show.

HSBC last month helped arrange a 15.2 billion-riyal sukuk for government-owned airport developer General Authority of Civil Aviation. It also helped foodmaker Almarai Co. raise 1.7 billion riyals in the kingdom’s first perpetual sukuk.

HSBC expects more “hybrid issuances from companies that want to mimic the Almarai issue” as well as “high-yield issuances related to high profile projects such as industrial cities,” Al Saif said. “We’ll also see more institutions with limited access to the market pursue ratings.”

Saudi British Bank, in which HSBC holds 40 percent, plans to sell Islamic bonds by the end of the year, Reuters reported Aug. 26, while Saudi Electricity hired banks for a sale, MEED reported Sept. 24. Saudi Hollandi Bank approved a private offering of riyal-denominated sukuk to support its capital base, according to a Sept. 26 statement to the Saudi stock exchange.

HSBC is also working on “several” initial public offerings and rights issues “across many sectors, including aviation and logistics, retail and other industrials,” Al Saif said. “With a number of companies considering primary or secondary offerings, we are optimistic that there will be a healthy amount of activity next year.”

Acquisition financing “will be a theme of 2014” as merger and acquisition deals increase in Saudi Arabia, Al Saif said.

(Updates with comment in eleventh paragraph.)
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