Top news
Saudi Aramco loan on ice
amid Khashoggi backlash
People & Markets Bank chiefs and corporate bosses skip Riyadh conference after journalist goes missing
BY SANDRINE BRADLEY,
STEVE SLATER, SUDIP ROY
A US$50bn-$70bn loan to back
oil and gas giant SAUDI ARAMCO’s
purchase of a stake in SABIC is
EXPECTEDûTOûBEûPUTûONûICEûAFTERû
the disappearance – and
apparent murder – of a Saudi
journalist erupted into a
political row and hit the
investment climate in the
kingdom.
The journalist’s
disappearance has also
prompted a raft of bank chiefs
to pull out from a showcase
investment summit being held
in Riyadh this week.
Banks had been enjoying
one of their best years ever for
fees from Saudi Arabia, but the
year now looks set to end on a
damp note for bankers in the
kingdom.
The Aramco loan for Sabic
HADNTûBEENûOFlCIALLYûLAUNCHEDû
and is now likely to be on hold,
according to two bankers.
“I think any talk about a deal
has to be suspended for now,”
said one of the bankers.
IFR reported last week that
bankers were beginning to
doubt there was enough
appetite among lenders to
raise the jumbo loan for state-
owned Aramco to buy a stake
of up to 70% in Sabic from
sovereign wealth fund PublicInvestment Fund, which was
announced in July.
The bankers blamed the
muted interest on concerns
over country lending limits
ANDûMIXEDûMESSAGESûFROMûTHEû
ruling family about the
kingdom’s long-term funding
plans.
Investment prospects
deteriorated further after the
disappearance of journalist
*AMALû+HASHOGGI ûAûHIGH
PROlLEû
critic of Saudi Arabia’s Crown
Prince, Mohammed bin
3ALMANû+HASHOGGIû
disappeared in Istanbul on
/CTOBERûûANDû4URKISHûOFlCIALSû
have said he was murdered and
his body removed. That has
been denied by the Saudis.
In the fallout, JP Morgan
#%/û*AMIEû$IMONûANDûHISû
counterparts at HSBC,
Standard Chartered, Credit
Suisse, BNP Paribas and Societe
'ENERALEûHAVEûALLûPULLEDûOUTû
FROMûNEXTûWEEKSû2IYADHûconference. So too have IMF
chief Christine Lagarde and the
chiefs of the London Stock
%XCHANGEûANDû&ORD
Politicians, including US
Treasury Secretary Steven
Mnuchin, will now also skip
the event.
Banks have been treading
carefully, however, in an effort
to try to stay on the right side
of the Saudis and lower level
BANKûOFlCIALSûAREûSTILLûLIKELYûTOû
turn up this week in Riyadh.
There are still jumbo deals in
the pipeline, including the
Aramco-Sabic transaction and
the potential record initial
public offering of Aramco.
Bankers said while they have
been told it is “business as
usual” in Saudi, deals have
been put on hold - probably
until the row dies down.
“There are a couple of Saudi
deals in the pipeline but they are
now on the backburner,” a
banker said.S&P flags ‘Titanic’ LGFV risks
Emerging Markets Deals continue despite warning over off-balance-sheet borrowing
BY CAROL CHAN
Offshore bond supply from
Chinese local government
lNANCINGûVEHICLESûCONTINUEDûTOû
ramp up last week, despite a
warning of rising default risks in
the sector from global rating
agency S&P.
&OURû,'&6SûPRINTEDûOFFSHOREû
bond deals, even as signs of
strain have started to show in
the sector.
A report from S&P on Tuesday
estimated that China’s local
governments have run up as
much as Rmb40trn (US$6trn) of
off-balance-sheet debt, which
had pushed the ratio of all
GOVERNMENTûDEBTûTOûûOFû'$0û
in 2017 – far higher than the
ûOFlCIALLYûREPORTED
The rating agency said it saw
little sign that Chinese local
governments were tackling the
PROBLEMû-EANWHILE û,'&6SûSTILLû
showed last week that they were
ABLEûTOûlNDûINVESTORûDEMAND
The report came a day after
WEIFANG URBAN CONSTRUCTION AND
DEVELOPMENT INVESTMENT, rated
BBB– by Fitch, priced US$250m
of 6.50% three-year bonds in a
public deal on Monday, adding
TOû,'&6ûSUPPLYûTHEûPREVIOUSû
week from SICHUAN DEVELOPMENT
INTERNATIONAL HOLDING (rated A–
by Fitch) and ANHUI PROVINCIAL
INVESTMENT GROUP HOLDING (rated
A3 by Moody’s and A– by Fitch).
4HREEûOTHERû,'&6SûOPTEDûFORû
private placements of short-term
notes last week, in a move market
participants said underlined theirdesperation for funding. YANCHENG
HI-TECH ZONE INVESTMENT GROUP
priced US$92m of 363-day notes at
7.1%, QINGDAO CITY CONSTRUCTION
INVESTMENT (GROUP) issued US$174m
of 364-day notes at 5.3%, and YUYAO
ECONOMIC DEVELOPMENT ZONE
CONSTRUCTION INVESTMENT &
DEVELOPMENT sold €50m (US$57m)
of 363-day notes at 4.60%.TITANIC RISKS
China has allowed some local
governments to fund themselves
directly in the bond market, in a
pilot programme to develop a
municipal bond market.
However, S&P pointed out that
many local authorities have
CONTINUEDûTOûUSEû,'&6SûTOû
DEVELOPûAûSIGNIlCANTûAMOUNTûOFû
infrastructure or social projects,as the Ministry of Finance’s
annual quota for the issuance of
local government bonds falls far
short of the investments needed
TOûSUPPORTûLOCALû'$0ûGROWTHûANDû
improve social welfare.
h7HILEûlRMûPLANSûAREûNEEDEDû
to reduce these off-balance-sheet
debts, progress has been limited
so far,” said S&P credit analyst
'LORIAû,Uûh4HEûPOTENTIALû
amount of debt is an iceberg
with Titanic credit risks.”
S&P warned that the rapid
increase in off-balance-sheet
borrowing raised questions over
THEûSUSTAINABILITYûOFûSOMEû,'&6S û
especially as the central
government is allowing more
STATE
LINKEDûlRMSûTOûDEFAULT
h7EûDONTûEXPECTûTHEûCENTRALûORû
local governments to have directSource: Refinitiv data0501001502002503003504004502000200220042006200820102012201420162018US$mFEES FROM SAUDI ARABIA
2000-PRESENT