Global banks are pushing ahead with growth plans in Saudi Arabia four months after a crackdown on corruption.
Lenders including UBS Group AG and Goldman Sachs Group Inc have been hiring and Citigroup Inc just won its first local advisory mandate since returning to Saudi Arabia after a 13-year absence. Deutsche Bank AG said it’s expanding in the kingdom as the outlook for bond and stock sales improves.
While the speed of the crackdown unsettled markets when it started late last year, the banks appear unfazed after several of the princes and officials who were arrested have since been released. That’s good news for Crown Prince Mohammad Bin Salman, who’s trying to to transform the economy into a financial powerhouse and away from oil.
“Over the medium-term, foreign investors will likely take comfort from the fact that no foreign investor was targeted by the anti-corruption drive,” said Ehsan Khoman, head of research for the Middle East and North Africa at Mitsubishi UFJ Financial Group Inc In the long run, “we view the anti-corruption drive as a net positive for investors.”
The disruptions fuelled speculation how the crackdown would affect the global banks that manage much of the region’s wealth. Many lenders had also invested in anticipation of a fee bonanza from what could be the largest IPO in history, the planned listing of parts of Saudi Arabian Oil Co., or Aramco.
MSCI Inc has added the Tadawul, the country’s stock exchange, to its watch list for a potential mid-2018 upgrade to emerging-market status. The Tadawul All Share Index has gained almost 7 per cent since early November.
If the banks themselves had any concerns about the crackdown, they brushed them off quickly and went back to business. UBS recently hired former Morgan Stanley banker Gabriel Aractingi to run its ultra-high net worth business in Saudi Arabia from Geneva. Goldman Sachs named Mohammad Al Awad to head its equities business in Saudi Arabia as it prepares to start trading local stocks.
“It hasn’t affected our plans at all,” Sjoerd Leenart, JPMorgan’s global head of corporate banking and regional head for Central & Eastern Europe, Middle East and Africa, said in an interview. “We are doubling down on our business in Saudi Arabia as the competition is fierce, there are a lot of new entrants. So we’re spending more time there, and putting more people to work to maintain our leadership.”
A spokesman for Zurich-based Credit Suisse said there haven’t been any implications for the Swiss bank’s business. UBS and Citigroup declined to comment.
Deutsche Bank, which is cutting jobs elsewhere, plans to hire in the region to cover sovereigns and large corporates, Jamal Al Kishi, chief executive officer for the Middle East and Africa, said in an interview in Dubai. The German lender has built its team in Saudi Arabia to about 90 people on expectations that the nation’s stock exchange may be upgraded to emerging market status.
“We are definitely more positive on the outlook for deals this year across sovereign bond sales, equity capital markets and privatisation,” Al Kishi said. “We also expect to see a lot of private sector companies tapping markets for both equity and debt.”
The kingdom’s debt management office on Friday announced that it had increased a $10 billion syndicated loan facility by $6 billion, citing an “exceptional response” from both existing holders and new banks.
Among private issuers, budget carrier FlyNas LLC earlier this year picked Citigroup to advise it on its IPO, which is planned for the end of the year or early 2019, people familiar with the matter said last month. That’s the first local mandate for the New York-based bank after it returned to the kingdom. Morgan Stanley and NCB Capital were also appointed to help with the offering.
Earlier this year, the Saudi authorities said that they had reached settlement agreements valued at more than $100 billion with many of those held.
Khoman at MUFG says the kingdom could use proceeds from the settlements for more investments, which would be positive for banks. Ayham Kamel, practice head for the Middle East and North Africa at Eurasia Group, a political risk consultancy, said he expects banks to continue applying for licenses in Saudi Arabia, if the government can provide more clarity about its plans.
“The level of commitment to investing in Saudi Arabia will depend of the government’s willingness to clarify its strategy,” Kamel said.