Saudi leadership in Islamic finance set to continue into 2021: expert

Saudi Arabia was historically known only to lead in countries where there was dual Islamic and conventional financing. (File/AFP)
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Updated 31 January 2021
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Saudi leadership in Islamic finance set to continue into 2021: expert

  • Islamic finance expert from Fitch Ratings said Saudi Arabia leads the Middle East and world in Islamic finance
  • Normalization of GCC-Qatar ties and growing emphasis on green finance are positive developments for the Kingdom

LONDON: Saudi leadership in the Islamic finance economy looks set to continue into 2021, according to a senior industry expert, who explained that the end of the GCC rift and growing emphasis on green finance both boost the Kingdom’s credentials.

“The region, and specifically I would say Saudi Arabia, is leading the Islamic finance market globally,” Fitch Ratings’ Global Head of Islamic Finance Bashar Al-Natoor told Arab News.

“Although Islamic finance is small globally, it is significant in the Middle East, and it is very significant in Saudi Arabia.”

Across the five key sectors of Islamic finance — Islamic banks, Sukuk, Takaful, fund management and Sharia-compliant corporate sectors — Saudi Arabia was historically known only to lead in countries where there was dual Islamic and conventional financing.

However, Al-Natoor said, this is now changing.

The Kingdom has started to lead the Sukuk market: “The Kingdom has previously carried out the largest ever Sukuk offering internationally — we expect this trend to continue.”

Saudi Arabia is also chasing the top spot in the fund management sector, where, alongside Malaysia, it has the most fund managers dedicated to Islamic finance.

Across Sukuk, fund management, Takaful, and the wider Islamic finance world, Al-Natoor said “you find that Saudi Arabia is leading.”

One development that has contributed to Saudi Arabia’s pre-eminence in Islamic finance is the end of the GCC-Qatar rift.

The normalization of ties between the GCC bloc and Qatar, Al-Natoor explained, not only increased investors’ confidence in the region and eliminated a political risk, but also provided a material boost to the Sukuk market.

“With the end of the GCC-Qatar rift, we expect Qatari sovereign entities to slowly re-enter the wider Sukuk market,” Al-Natoor said.

He said the relatively shallow investor pool for Sukuks, compared with traditional bonds, means that, for Qatari entities, the importance of accessing the Saudi Arabian and Emirati markets are even more significant.

In addition to the favorable political conditions that have cemented Saudi leadership in Islamic finance, their experience in sustainable, green finance will also be instrumental in the future. 

Saudi Arabia, Al-Natoor said, issued its first ever green Sukuk last year when the Saudi Electric Company issued over $1.3 billion in Shariah-compliant bonds to assist in the company’s green transition.

This pattern of markets shifting towards green Sukuk, Al-Natoor said, is one he expects to continue.

“What we saw in 2020 is a trend that we expect to continue: Issuers coming with Sukuk and prioritising being sustainable.”

Green financing, whether conventional or Islamic, is still at an early stage of adoption globally, Al-Natoor explained, but green Sukuks represent a smart way for issuers to attract more investors.

“Because issuers are trying to widen their investment bases, we have seen the mix of green and Islamic coming to the forefront. Whether in Saudi Arabia, the UAE, or multilateral organizations like the Islamic Development Bank, we expect this trend to continue.”

Fitch Ratings released their Global Sukuk Outlook Dashboard earlier this month. Their report warned that some Sukuk issuers in the Middle East had taken a hit to their credit ratings due to the pandemic’s economic conditions and the drop in oil prices.

The report said: “In 2021, we expect global sukuk supply to accelerate, as issuers seek to refinance maturing debt, fund large budget needs, and as GCC investment restrictions ease following the normalisation of relations between Qatar and its neighbors.”


Oil Updates – prices ease but remain near 2-week highs on Russia, Iran tensions

Updated 25 November 2024
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Oil Updates – prices ease but remain near 2-week highs on Russia, Iran tensions

SINGAPORE: Oil prices retreated on Monday following 6 percent gains last week, but remained near two-week highs as geopolitical tensions grew between Western powers and major oil producers Russia and Iran, raising risks of supply disruption.

Brent crude futures slipped 26 cents, or 0.35 percent, to $74.91 a barrel by 7:40 a.m. Saudi time, while US West Texas Intermediate crude futures were at $70.97 a barrel, down 27 cents, or 0.38 percent.

Both contracts last week notched their biggest weekly gains since late September to reach their highest settlement levels since Nov. 7 after Russia fired a hypersonic missile at Ukraine in a warning to the US and UK following strikes by Kyiv on Russia using US and British weapons.

“Oil prices are starting the new week with some slight cool-off as market participants await more cues from geopolitical developments and the Fed’s policy outlook to set the tone,” said Yeap Jun Rong, market strategist at IG.

“Tensions between Ukraine and Russia have edged up a notch lately, leading to some pricing for the risks of a wider escalation potentially impacting oil supplies.”

As both Ukraine and Russia vie to gain some leverage ahead of any upcoming negotiations under a Trump administration, the tensions may likely persist into the year-end, keeping Brent prices supported around $70-$80, Yeap added.

In addition, Iran reacted to a resolution passed by the UN nuclear watchdog on Thursday by ordering measures such as activating various new and advanced centrifuges used in enriching uranium.

“The IAEA censure and Iran’s response heightens the likelihood that Trump will look to enforce sanctions against Iran’s oil exports when he comes into power,” Vivek Dhar, a commodities strategist at Commonwealth Bank of Australia said in a note.

Enforced sanctions could sideline about 1 million barrels per day of Iran’s oil exports, about 1 percent of global oil supply, he said.

The Iranian foreign ministry said on Sunday that it will hold talks about its disputed nuclear program with three European powers on Nov. 29.

“Markets are concerned not only about damage to oil ports and infrastructure, but also the possibility of war contagion and involvement of more countries,” said Priyanka Sachdeva, senior market analyst at Phillip Nova.

Investors were also focused on rising crude oil demand at China and India, the world’s top and third-largest importers, respectively.

China’s crude imports rebounded in November as lower prices drew stockpiling demand while Indian refiners increased crude throughput by 3 percent on year to 5.04 million bpd in October, buoyed by fuel exports.

For the week, traders will be eyeing US personal consumption expenditures data, due on Wednesday, as that will likely inform the Federal Reserve’s policy meeting scheduled for Dec. 17-18, Sachdeva said.
 


Saudi Arabia’s private debt market targets over $1.77bn by Q3 2024: report

Updated 24 November 2024
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Saudi Arabia’s private debt market targets over $1.77bn by Q3 2024: report

RIYADH: Saudi Arabia’s private debt market is experiencing significant growth, with eight active funds targeting to raise over $1.77 billion in capital by the third quarter of 2024, according to a new report.

This growth is driven by a sharp rise in investor confidence, with 97 percent of Middle East-based institutional investors now viewing the Kingdom as the most promising market for private debt in the coming year, up from 82 percent in 2023, based on Preqin survey data.

The report, titled “Territory Guide: The Rise of Private Debt Funds in Saudi Arabia 2024,” was published in collaboration with Saudi Venture Capital Co. It highlights the increasing interest from both regional and global investors, fueled by the positive outcomes of the Kingdom's Vision 2030 reforms.

The findings align with the fact that Saudi Arabia accounts for up to 27.5 percent of private debt fund transactions in the Middle East and North Africa region between 2016 and the third quarter of 2024.

In 2022, private debt funds focused on Saudi Arabia raised a record $335 million in total capital, a sharp rise from the $32 million raised by a single fund in 2003.

“This first-of-its-kind report highlights the emergence of private debt funds as a key asset class in Saudi Arabia, driven by the Kingdom’s Vision 2030 and its ambition to diversify the economy,” said Nabeel Koshak, CEO and board member at SVC.

“At SVC, we continue our commitment to support the development of such reports that provide policymakers, investors, and founders with insights and data to inform strategic decisions and policies to nurture the private capital ecosystem further,” Koshak added.

David Dawkins, lead author of the report at Preqin, commented: “Global investment firms are not alone in closely watching the growth and evolution of Saudi Arabia’s nascent private debt industry.”

Dawkins also noted: “For other developing economies in the Middle East and beyond, Saudi Arabia’s success in this area will strengthen the impetus for improving transparency to secure the capital needed for sustainable growth in a net-zero world.”

The study further revealed that among all private debt funds with investments tied to Saudi Arabia that concluded between 2016 and the third quarter of 2024, mezzanine funds accounted for 50 percent of total exposure, with direct lending and venture debt funds closely following at 30 percent and 20 percent, respectively.

Support for startups and small to medium-sized enterprises in the Kingdom is also reflected in the high proportion of venture debt, which represents 75 percent of all funds in the market with Saudi Arabia exposure.

The report also highlighted that private debt marked its second consecutive year as the asset class with the highest proportion of Middle Eastern investors intending to increase their investments in the coming year. Nearly 58 percent of investors expressed this sentiment, up from 50 percent in 2023.

The percentage of investors considering private debt the most promising asset class in the region rose by 12 percentage points, from 31 percent in 2023.

Private debt is expected to further bolster Saudi Arabia’s growing entrepreneurial community as the nation advances toward its Vision 2030 goals. Since 2018, new regulatory frameworks have been implemented, ushering in an era of increased transparency and equity within the private debt sector, closely aligned with the Kingdom’s broader investment vision.


Closing Bell: Saudi main index rises to close at 11,864 

Updated 24 November 2024
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Closing Bell: Saudi main index rises to close at 11,864 

RIYADH: Saudi Arabia’s Tadawul All Share Index rose on Sunday, gaining 24.38 points, or 0.21 percent, to close at 11,864.90. 

The benchmark index recorded a trading turnover of SR4.22 billion ($1.12 billion), with 124 stocks advancing and 99 declining. 

The Kingdom’s parallel market Nomu also posted gains, climbing 345.06 points, or 1.13 percent, to close at 30,885.34, as 49 stocks advanced and 32 declined. 

The MSCI Tadawul Index increased by 4.74 points, or 0.32 percent, to close at 1,491.56. 

The best-performing stock of the day was Arabian Contracting Services Co., whose share price surged 9.97 percent to SR167.60. 

Other notable gainers included Saudi Reinsurance Co., rising 4.97 percent to SR45.45, and Saudi Public Transport Co., which climbed 3.98 percent to SR23.00.     

Al-Baha Investment and Development Co. led the decliners, falling 6.06 percent to SR0.31. Aldrees Petroleum and Transport Services Co. dropped 4.33 percent to SR123.60, and Batic Investments and Logistics Co. declined 3.23 percent to SR3.59. 

Leejam Sports Co. announced the opening of four new fitness centers. These include a men’s center and the first ladies’ center in Al-Rass city, Qassim Province, as well as the first men’s and ladies’ centers in Al-Qunfidah city, Makkah Province.  

Branded under “Fitness Time” and “Fitness Time - Ladies,” the centers will feature state-of-the-art facilities, high-spec sports equipment, and modern designs. 

The financial impact of these openings is expected to reflect in the fourth quarter of 2024. Despite the announcement, Leejam Sports Co. closed the session at SR180, down 0.34 percent. 

Obeikan Glass Co. reported a net profit of SR29.89 million for the nine months ending Sept. 30, a 58.3 percent drop from the same period in 2023. The decline was attributed to lower average selling prices due to global market conditions and increased administrative expenses related to a new investment in a subsidiary, Saudi Aluminum Casting Foundry.  

The stock ended at SR49.60, down 1.59 percent. 

United Mining Industries Co. announced the issuance of two exploration licenses for gypsum and anhydrite ore from the Ministry of Industry and Mineral Resources. The company plans to conduct studies to determine the availability of raw materials, with financial impacts to be announced upon completion.  

Its stock closed at SR39.60, up 0.26 percent.


Morgan Stanley receives approval to establish regional HQ in Saudi Arabia

Updated 24 November 2024
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Morgan Stanley receives approval to establish regional HQ in Saudi Arabia

RIYADH: US-based investment bank Morgan Stanley has been granted approval to establish its regional headquarters in Saudi Arabia, as the Kingdom continues to attract international investment.

This move aligns with Saudi Arabia’s regional headquarters program, which offers businesses various incentives, including a 30-year exemption from corporate income tax and withholding tax on headquarters activities, as well as access to discounts and support services.

Saudi Investment Minister Khalid Al-Falih confirmed the progress of this initiative in October, stating that the Kingdom has successfully attracted 540 international companies to set up regional headquarters in Riyadh—exceeding its 2030 target of 500.

“Establishing a regional HQ in Riyadh reflects the growth and development of Saudi Arabia and is a natural progression of our long history in the region,” said Abdulaziz Alajaji, Morgan Stanley’s CEO for Saudi Arabia and co-head of the bank’s Middle East and North Africa operations, according to Bloomberg.

Morgan Stanley first entered the Saudi market in 2007, launching an equity trading business in Riyadh, followed by the establishment of a Saudi equity fund in 2009.

This approval follows a similar move by Citigroup earlier this month, with the bank also receiving approval to establish its regional headquarters in Saudi Arabia.

Fahad Aldeweesh, CEO of Citi Saudi Arabia, emphasized that this development would support the firm’s future growth in the Kingdom.

Goldman Sachs, another major Wall Street bank, also received approval in May to set up its regional headquarters in Saudi Arabia.

Prominent international firms that have already established regional headquarters in Saudi Arabia include BlackRock, Northern Trust, Bechtel, PepsiCo, IHG Hotels and Resorts, PwC, and Deloitte.

In addition, a recent report from Knight Frank noted that Saudi Arabia's regional headquarters program has led to increased demand for office space in Riyadh, with the city’s office stock expected to grow by 1 million sq. meters by 2026.

In August, Kuwait’s Markaz Financial Center echoed this sentiment, predicting a significant uptick in the Kingdom’s real estate market during the second half of the year, driven by the regional headquarters program.


QatarEnergy strengthens global footprint with offshore expansion in Namibia 

Updated 24 November 2024
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QatarEnergy strengthens global footprint with offshore expansion in Namibia 

RIYADH: QatarEnergy has expanded its portfolio through a new agreement with TotalEnergies to increase its ownership stakes in two offshore blocks in Namibia’s Orange Basin. 

According to a press release, the state-owned energy firm will acquire an additional 5.25 percent interest in block 2913B and an additional 4.7 percent interest in block 2912 under the new deal, subject to customary approvals.  

Once finalized, QatarEnergy’s share in these licenses will rise to 35.25 percent in block 2913B and 33.025 percent in block 2912.  

Saad Sherida Al-Kaabi, Qatar’s minister of state for energy affairs and CEO of QatarEnergy, said: “We are pleased to expand QatarEnergy’s footprint in Namibia’s upstream sector. This agreement marks another important step in working collaboratively with our partners toward the development of the Venus discovery located on block 2913B.” 

TotalEnergies, the operator of both blocks, will retain 45.25 percent in block 2913B and 42.475 percent in block 2912. Other partners include Impact Oil & Gas, which holds 9.5 percent in both blocks and the National Petroleum Corp. of Namibia, which owns 10 percent in block 2913B and 15 percent in block 2912.   

Located about 300 km off the coast of the African country, in water depths ranging from 2,600 to 3,800 meters, these blocks host the promising Venus discovery. The Venus field has attracted considerable attention as a significant find that could impact Namibia’s energy future.  

This offshore acquisition complements QatarEnergy’s recent ventures into renewable energy. In October, the company announced a 50 percent stake in TotalEnergies’ 1.25-gigawatt solar project in Iraq.  

The initiative, part of Iraq’s $27 billion Gas Growth Integrated Project, aims to enhance Iraq’s energy self-sufficiency by addressing its reliance on electricity imports and reducing environmental impacts.   

The solar project, set to deploy 2 million bifacial solar panels, will generate up to 1.25 GW of renewable energy at peak capacity, supplying electricity to approximately 350,000 homes in Iraq’s Basra region.  

QatarEnergy will share equal ownership of the project with TotalEnergies, which retains the remaining 50 percent. 

The firm’s dual focus on traditional and renewable energy highlights its strategic approach to meeting global demands while addressing sustainability concerns.  

Its involvement in Namibia’s offshore blocks and Iraq’s shift toward renewable energy highlights a well-rounded portfolio that includes fossil fuels and clean energy investments.