Saudi Regulator Clears Bond Market Plan

07/06/2009 00:00 AST

The Saudi stock market regulator has approved setting up a market for debt securities, it said on Saturday, responding to a long-standing demand by some firms to diversify sources of financing amid tight credit conditions.

The Capital Market Authority’s decision is part of its “continunous and gradual effort to develop the Saudi capital market”, it said in a statement posted on the bourse’s Web site.

The Saudi stock exchange — Tadawul — has already developed the market, which will trade bonds and sukuk through licenced intermediaries, the Capital Market Authority, or CMA said. The date of the market’s launch will be announced later, it added.

The CMA’s head, Abdul Rahman Al Tuwaijri, has already said the authority planned to launch a market for debt securities.

Central Bank Governor Mohammad Al Jasser said in February that commercial banks and firms seeking financing should tap more the debt market with the issue of bonds.

A surge in lending over the past five years that was fuelled by record oil prices has brought several Saudi banks to limits on their credit capacity with loan-to-deposit ratio exceeding at the end of last year the limit imposed by the Central Bank.

Bank loans in 2008 equalled their total during the previous two years, Jasser said in February.

Concern over fallout of the global financial crisis has further slowed down credit growth as lenders became increasingly cautious.

Tadawul currently trades Islamic bond issues by only two listed firms — Saudi Basic Industries Corporation and Saudi Electricity.

The government is a major shareholder in both firms.

Tadawul Slips

Saudi shares fell in the week’s first day of trading, led by Saudi Industrial Investment Group, an investor in petrochemicals projects, and Malath Insurance Company.

The Tadawul All Share Index dropped 1.1 per cent to 5,984.56 in Riyadh. The index, at its lowest since May 31, has gained 25 per cent this year after losing more than half its value in 2008 as oil prices dropped. Saudi Industrial dropped 5.2 per cent to SR17.35. Malath Insurance, the largest insurer by market value, fell 4.8 per cent to SR34.

“The market hasn’t really broken from the 6,000 mark,” John Sfakianakis, chief economist of Saudi British Bank, said in a telephone interview on Saturday from Riyadh.

“It’s gone back and forth for a few trading sessions, either because it’s in anticipation of good news which could push it up, or bad news pushing it down.”

He said better-than-estimated US employment figures had been expected to boost the market.

Agencies