Saudi is looking to Asian investors for FDI push

Saudi is looking east to unlock FDI + equity investments in the domestic economy: Tadawul is ramping up its efforts to attract equity investments from Asia, focusing on the significant potential of flows from Chinese, Indian, and other Asian investors, Chief Strategy Officer Lee Hodgkinson said on Bloomberg’s Tiger Money (listen, runtime: 38:00). These investments would not only boost exchange liquidity, but also benefit listed companies, he explained. Bloomberg also has a rundown of the podcast episode.

The rationale: Saudi's prime location, along with favorable time zones and a fresh, no-legacy approach, positions Riyadh as an appealing partner for Chinese and Asian investors, Hodgkinson added. Despite Riyadh’s strong trade and investment ties with the US, “I think the other interesting factor is just the sort of sheer size of investment that can come from Chinese investors, from Indian investors, and from Asian investors,” he explained.

ETFs are at the front and center of Tadawul’s Asian push: ETFs “provide a really good structure” for engaging with Asia-based investors, Hodgkinson noted. “What we've done with our colleagues in China is to really begin the process of awakening and marketing the Saudi equity story to Chinese investors via these ETFs.”

IN CONTEXT- The Saudi exchange has nine ETFs with USD 54 mn in assets under management— two are tracking US equities, and the rest is tracking Saudi companies, Hodgkinson said. Two exchange-traded funds (ETFs) tracking Saudi stocks made their debut in Shanghai and Shenzhen last month. The China Southern Asset Management CSOP Saudi Arabia ETF QDII listed in Shenzhen after raising CNY 634 mn (USD 87 mn) ahead of listing, while the Huatai-PineBridge CSOP Saudi Arabia ETF QDII listed in Shanghai after drawing in CNY 590 mn ahead of listing.

The Investment Ministry is also hoping to lure in more money from Asia as the new investment law comes into effect, Assistant Investment Minister Ibrahim Al Mubarak said in an interview with CNBC (watch, runtime: 2:30). Despite being Saud’s largest trade partner, the Kingdom has yet to see “more on the FDI side” from China, Al Mubarak said. While retaining existing investors is a sign of confidence in the economy, the fact that they are the ones injecting the majority of our FDI figure, makes the case for the fresh investment law which looks to attract new foreign investors, he said.

Where things currently stand: FDI in the Kingdom clocked in at some USD 20 bn last year, up 150% from 2016, Al Mubarak noted, adding that studies show that some 60% of new investments are coming from already-existing investors.

Big potential for investors in the local debt + equity capital markets: Saudi Arabia’s debt-to-GDP ratio is among the lowest in the G20 and debt capital markets are “underserved,” presenting valuable prospects for private sector players in the financial sector, Al Mubarak explained. He also went on to highlight that Saudi’s equity capital market represents 78% of the region’s by volume and is the ninth globally.

Egyptian construction companies are about to have a lot of business here: The National Housing Company (NHC) is set to launch a limited tender for Egyptian construction companies to bid on USD 200 bn worth of housing and infrastructure projects in the kingdom, a source with knowledge of the matter told EnterpriseAM Egypt. The NHC met with 16 local companies and the Egyptian Housing Ministry earlier this week to present the initiative, which includes infrastructure projects in Makkah, Tabuk, and Jazan.

Who’s in the running? Leading Egyptian construction players, including Orascom Construction, Hassan Allam Construction, Arab Contractors, Petrojet, Nasr General Contracting, and Alshams for Contracting participated in the talks. The meeting reportedly touched on the companies’ experience implementing large infrastructure projects and their ability to follow through on a contract.

There’s still a few hurdles to be crossed before contracts can be inked: The Central Bank of Egypt is yet to give banks the greenlight to issue letters of guarantee in USD or SAR, a crucial step for Egyptian firms to enter the Saudi market and secure foreign currency, the source explained. Discussions are also underway to establish a risk fund at the central bank to facilitate the issuance of guarantees for these companies. In addition to the guarantees, the NHC has proposed increasing the issuance commission as an incentive for banks to facilitate the process.

There are plenty of Egyptian companies already developing projects in the kingdom with the NHC: Talaat Moustafa Group began selling units in May for its first development both in Saudi Arabia and outside of Egypt. The mixed-use SAR 65 bn Benan City project in Riyadh that was developed in partnership with the NHC will be fully built out over eight years and eventually house 27.8k residential units, along with a sports club and health, educational, and commercial services. Al Ahly Sabbour also has a Riyadh real estate project in the works. Our friends at Hassan Allam Construction Saudi were also awarded a contract last month to develop Port of NEOM’s Container Terminal 1 and a related marine services area.

REMEMBER- The Saudi real estate industry is under pressure to keep up with demand as the country’s population is on track to grow, with the share of expats rising to 50% from a current 42% by 2030, S&P Global said earlier this year. Supply — particularly in Riyadh and Jeddah — remains tight, causing inflation to accelerate as rent prices rise. Saudi has some USD 103.1 bn-worth of active building projects, with around 900 projects worth a combined USD 50 bn currently in the construction phase.

Dallah Healthcare to acquire two Ayyan subsidiaries via noncash share transfer: Dallah Healthcare inked a binding SAR 660 mn share purchase and subscription agreement with Ayyan Investment to acquire two of Ayyan’s subsidiaries, according to disclosures to Tadawul (here and here). Both transactions are pending regulatory approvals, and shareholders’ approvals from both parties. The two companies are listed on Tadawul’s main market.

Transaction size + valuations: Dallah will acquire Ayyan’s 97.4% stake in Al Ahsa valued at SAR 409 mn, in addition to acquiring 100% of Ayyan’s Al Salam Medical valued at SAR 251 mn, “by way of a capital increase by issuing new shares in Dallah to Ayyan,” the statements read.

The agreement will see Dallah issue 3.9 mn new shares to Ayyan valued at SAR 660 mn. If the transactions go through, Dallah’s existing shareholders will keep a 96.2% stake in the company, while Ayyan’s shareholders will hold the balance. Ayyan has another 100% owned subsidiary, Al Ahsa Food Industries.

The fine print: “There may also be a cash consideration payable to Ayyan or Dallah based on certain conditions specified in the share purchase and subscription agreement,” according to the disclosures.

Al Ahsa + Al Salam closed 1H of this year in the red: Al Ahsa’s net income rose to SAR 7.1 mn in 2023, up from SAR 4.1 mn in the previous year, according to Ayyan data (pdf). Meanwhile, Al Ahsa reported a net loss of SAR 8.4 mn in 1H of this year. Al Salam reported a net loss of SAR 218.4 mn in 2023, up from a SAR 53.2 mn net loss in the previous year. It also posted a net loss of SAR 95.9 mn in 1H of this year.

REMEMBER- Ayyan’s accumulated losses by 1H 2024 hit 44.9% of the company’s capital. This places the company under the purview of Article 4 of the CMA’s guidelines for listed companies with accumulated losses, flagging the company’s stock until a remedial plan is announced. Ayyan Investment has raised over SAR 47.1 mn from its rump share offering earlier this month, which was 6.48x oversubscribed.

Market reax: Ayyan’s share price dropped 3.7% to SAR 17.4 per share at yesterday’s close, while Dallah’s share price dipped 1% to SAR 163.6 per share.

IN OTHER M&A NEWS-

Almunajem Foods secures approval for upping its stake in Balady Poultry: Tadawul-listed Almunajem Foods and Balady Poultry Trading received the go-ahead from the General Authority for Competition for a share purchase agreement that will see Almunajem acquire an additional 23% of Balady Poultry, according to two separate filings to the exchange (here and here). The transaction was valued at SAR 181.3 mn and will bring Almunajem’s total ownership in the company up to 40%.

Aramco taps Saipem for EPCI works in Marjan oil + gas field: Saudi Aramco has reportedly awarded a contract to Milan-based contractor Saipem for engineering, procurement, construction, and installation (EPCI) works with investments between USD 2 bn and USD 2.5 bn for multiple structures at the Marjan oil and gas field, according to a Meed exclusive. The involved parties have not disclosed any information about the reported contract.

What’s the job? The contract includes installing eight slipover jackets, three production deck modules, the upgrading of auxiliary platforms, laying subsea pipelines and cables spanning a 166 km area, and demolishing existing units, according to the project tracking platform.

This has been in the works since January: Meed cites unnamed sources as saying that technical and commercial bids for the project were submitted back in January. Saipem, along with other contractors including Lamprell, Larsen & Toubro Energy Hydrocarbon, Subsea 7, and NMDC Energy participated were among the bidders, the sources added.

Marjan is set to boost Aramco’s oil production capacity: The oil giant reported in its 1Q results that the Marjan crude oil increment is expected to add crude oil production capacities of 300k bbl / d and are on track and forecasted to be onstream by next year.

The latest we heard of Marjan: Last week, it was reported that China Offshore Oil Engineering completed a 24-storey offshore oil and gas platform that is set to be transported to the Marjan oil field at the end of this month.

REMEMBER- Saipem landed two offshore projects worth a combined USD 500 mn from oil giant Aramco last month for EPCI works in the Abu Sa’fah oil field and to introduce production maintenance programs for the Berri and Manifa fields.

Long-standing partners: Saipem said earlier this year that it is forecasting a 20% fall in average annual orders from Aramco until 2027 on the back of the oil giant’s decision to shelve plans of investment in new production capacity. However, it said Aramco’s suspension would not significantly impact its 2024 targets.

Bahri to acquire nine oil tankers for USD 1 bn: Shipping giant Bahri inked an agreement to acquire nine very large crude carriers (VLCCs) from global shipping outfit Capital Maritime and Trading Corporation for SAR 3.75 bn (c.USD 1 bn), according to a disclosure on the Saudi Exchange (Tadawul) yesterday. The VLCCs will be used by Bahri’s oil transport business to transport crude oil cargoes to its customers. The national shipping company is partly owned by the Public Investment Fund (Saudi’s sovereign wealth fund) and oil giant Aramco.

Ironing out the details: Capital Maritime and Trading Corporation will deliver the VLCCs to Bahri in multiple batches before the end of 1Q 2025. The Saudi firm will pay 10% of the total amount upon signing the purchase agreement, while the remaining 90% will be paid upon delivery of the vessels. The transaction will be financed by a combination of banking facilities and internally generated funds by Bahri, according to the disclosure.

About the vessels: The majority of the nine oil tankers are built in South Korea, Bahri said. The vessels are scrubber-fitted and equipped with high energy efficiency and low emission features to decrease environmental impacts. The average deadweight tonnage of each VLCC is around 311.5k.

Why this matters: Bahri says that the agreement will contribute to its fleet modernization plans, and will enable the company to phase out its older vessels. Bahri currently operates a fleet of 40 VLCCs with a 2.2 mn barrels capacity, according to the company’s website.

Bahri is all in for S. Korea VLCCs: Bahri reportedly bought four modern VLCCs in May from South Korean SM Group subsidiary Korea Line Corporation. No order ticket has been disclosed, but the four-year-old ships could have cost around USD 116 mn each.

Ambitious plans: Bahri said last month following its 2Q 2024 earnings that it plans to generate further growth through strategic fleet expansion and upgrades. Bahri and Saudi investment holding firm Aljan & Bros renewed earlier this year an MoU to discuss establishing a joint venture (JV) in vessel building. Bahri is also partnering with the Saudi Port Authority to establish a 95k sqm logistics center at Jeddah Islamic Port, which is expected to offer services including container maintenance, repair, cleaning, bonded storage, and haulage.

Cabinet approved a handful of decisions and agreements in its weekly meeting yesterday, according to state news agency SPA:

• A framework agreement with the Arab Confederation for Institutes of Internal Auditors to establish its headquarters in Saudi Arabia;
• A mutual visa exemption agreement with Cyprus for diplomatic, special, and service passport holders;
• An MoU on direct investment with the UK, and Northern Ireland;
• An MoU for nuclear regulatory cooperation with the Czech Republic;
• A customs cooperation agreement with Tunisia;
• A competition and antitrust cooperation agreement with Iraq;
• An anti-corruption cooperation MoU with Malaysia;
• A social ins. cooperation MoU with Jordan;
• A one-year extension of the indicative period for the unified law on organic inputs and products in GCC countries;
• An MoU for geological research cooperation with Mauritania.

The Public Investment Fund’s performance last year is leading the conversation on Saudi in the foreign press: The Financial Times came out with a piece on how the PIF is transitioning from a major global investor to focusing more on domestic projects, signaling a shift away from being a straightforward source of capital. With falling oil revenues and rising domestic development needs, the PIF is now placing more emphasis on ramping up local employment, along with reinvestment in the kingdom. Meanwhile, CNBC took note of some of the most significant KPIs mentioned in the fund’s annual report for 2023 (watch, runtime: 1:00).

AVIATION-

Four firms contracted to develop King Salman International Airport: PIF subsidiary King Salman International Airport Development Company (KSIADC) has inked a strategic partnership agreement with four international and local firms for the development of the planned King Salman International Airport in Riyadh, state news agency SPA reports. The airport is an expansion of the capital’s King Khalid International Airport.

Who's involved: International architecture firm Foster + Partners will draft the airport's master plan, which will include several terminals and six runways. Engineering outfit Jacobs will consult on the airport's runways and master plan. Consulting and construction company Mace will oversee planning and construction, while Saudi-based aviation operations solutions firm Nera will manage airspace design to streamline air traffic and boost capacity.

There’s a rough timeline for the project: Officials said in late June that they plan to open the airport’s private aviation terminal in 2026. The airport plans to introduce a new runway in 2027, a passenger terminal in 2028, and its “iconic terminal” by 2030, the airport’s acting CEO Marco Mejia said. Construction is set to continue until 2034, he added.

REFRESHER- Unveiled in November 2022, the airport is poised to be one of the world’s largest airports with an area spanning 57 square kilometers with six parallel runways. It is set to accommodate up to 120 mn passengers by 2030 and 185 mn travelers by 2050.

INVESTMENT WATCH-

Healthcare provider Al Modawat Specialized Medical is set to establish a healthcare-focused investment arm in Egypt, a disclosure to Tadawul showed. Al Modawat will own 100% of the potential company. Information about the potential investment size and the timeline wasn’t disclosed.

ALSO FROM CAIRO- Egypt-based Biogrand to set up a SAR 25 mn fertilizers plant in the Kingdom: Fertilizer producer Biogrand plans to set up a SAR 25 mn (c. USD 6.7 mn) fertilizer factory here at home by the end of February 2025, CEO Esmael Taha told Al Mal. The factory will be established in partnership with unnamed Saudi investors and split its output evenly between the Saudi market and exports to Jordan, Iraq, Libya, and Algeria

INFRASTRUCTURE-

RSI subsidiary lands SAR 167 mn utility installation contract: Red Sea International (RSI) subsidiary Fundamental Installation for Electric Work (First Fix) has inked an SAR 167 mn 36-months contract with Modern Building Leaders for MEP works, according to a filing to Tadawul.

DEBT WATCH-

Al Jouf Cement obtained a SAR 150 mn Shariah-compliant loan from Al Rajhi Bank, according to a disclosure to Tadawul. The eight-year credit facility will be used to pay off a portion of an outstanding debt and finance future activities.

FINANCIAL SERVICES-

The Cultural Development Fund inked five agreements with major local banks to launch a new financing solution aimed at supporting and sustaining the cultural sector, it said in a statement on Linkedin. The lenders include Al Rajhi Bank, Alinma Bank, BSF, Arab National Bank, and Bank Aljazira. No further information was provided.

Market confidence returns as investors pile back into equity markets: Investors who had exited equity markets following US recession fears earlier this month have “sharply increased their holdings” in equity markets since last week’s rebound in global stock markets, the Financial Times reports, citing data from Deutsche Bank. Investors piled into big tech stocks, index options, and both cyclical and non-cyclical stocks, the bank said in a note seen by the FT.

The data represents what appears to be a “full recovery” for the US equity markets in just two weeks, US stock exchange operator Cboe Global Markets’ Mandy Xu said. The rebound follows a “brutal” sell-off that took place during the first week of August, which saw some indices hit multi-year lows and wiped USD tns from global stock markets.

Remember: Global stocks saw their best week in nine months last week after better-than-expected US inflation figures helped calm recession fears triggered by “alarming” US economic data.

Confidence in the US economy seems to be stronger than ever, despite many analysts just days ago warning of a looming recession. Some, including the Bank of America, argue that “this month’s ructions across markets have simply served to reinforce investor conviction in a Goldilocks macro environment” of stable inflation, sustainable economic growth, and healthy employment levels.

MARKETS THIS MORNING-

Asian markets are in the red this morning, carrying on yesterday’s losses seen on Wall Street and in Europe. Hong Kong’s Hang Seng is down 1.4%, Japan’s Nikkei is down 0.8%, and Korea’s Kospi is down 0.2%.

THE CLOSING BELL: TADAWUL-

The TASI rose 0.7% yesterday on turnover of SAR 8.8 bn. The index is up 1.1% YTD.

In the green: Red Sea International (+10.0%), Zamil Industrial Investment (+9.9%) and Buruj Cooperative Ins. (+9.0%).

In the red: Cenomi Retail (-5.7%), Ayyan Investment (-3.7%) and Ataa Educational Company (-2.7%).

THE CLOSING BELL: NOMU-

The NomuC rose 0.8% yesterday on turnover of SAR 63.7 mn. The index is up 6.0% YTD.

In the green: Mayar Holding (+15.5%), ASG Plastic (+13.3%) and United Mining Industries (+7.7%).

In the red: Mohamed Hadi Al Rasheed (-9.8%), Riyadh Steel (-8.3%) and Almuneef (-7.0%).

Saudi and Uruguay signed several MoUs as the two countries wrapped the inaugural two-day session of a joint committee in Montevideo yesterday, according to state news agency SPA. The agreements include an MoU to create a joint business council, along with plans to strengthen collaboration in economic, trade, agricultural, cultural, and sports sectors, with the goal of increasing trade and investment between the two countries.