|SUBJECT||Bank Becomes First Institution in Asia to Issue Bonds in Saudi Riyal- Part 1|
On November 24, Korea Eximbank successfully became the first institution in Asia to issue bonds in riyal, the currency of Saudi Arabia.
The issuance amount of SAR 750 million, which is equivalent to USD 200 million, is the largest bond issuance in SAR since that by the IBRD in 2009.
The bond was issued with a maturity period of five years and at the rate of Saibor* plus 1.70%. When swapped in US dollars, the rate is Libor plus 2.49%, which is more favorable than the rate of US dollar public issues.
* Saibor: standard rate of float-rate bonds issued in Saudi Arabia
This bond issuance by Korea Eximbank is significant in that the Bank’s portfolio, which was focused primarily on US and EU borrowing markets, has been diversified to include markets in the Middle East. This issuance is also significant in that by becoming the first Asian institution to successfully issue bonds in the local currency for investors of Saudi Arabia, the Bank loosened frozen financing channels even under difficult conditions in international financial markets.
Moreover, as this issuance is in line with government initiatives to attract funds from the Middle East, Korea Eximbank enhanced sovereign ratings by faithfully serving its role as a policy financial institution during a time when borrowing in foreign currencies has been made difficult by the European fiscal crisis.
With international financial markets becoming increasingly volatile, oil producing countries in the Middle East are increasingly seen as new sources for foreign funding thanks to abundant liquidity from high oil prices.
This latest bond issuance by Korea Eximbank is seen as a bridgehead for future inflows of oil money from the Middle East as it provided investors in the Middle East with new incentives to invest in Korea.
Notably, the Bank’s active efforts to build strong networks with the Middle East including seminars** for local investment opportunities and conclusion of MOUs* with financial institutions in the Middle East for information and HR exchange, especially after the appointment of the current Chairman & President Yong Hwan Kim earlier this year, played a major role in the success of the bond issuance.
* MOUs were concluded with nine institutions in three Middle Eastern countries such as the UAE in 2011
** Approximately 70 seminars were held in 2011 with 60 institutions in five Middle Eastern countries such as Saudi Arabia
Chairman Kim made great efforts to secure funds from the Middle East by meeting with bank executives from the Middle East to discuss inter-institutional opportunities whenever he could. Such efforts contributed greatly to inducing the participation of major banks in Saudi Arabia in this bond issuance.
Strict bond issuance review policies of Saudi Arabian financial authorities require foreign institutions to have top credit ratings such as those of the IBRD (AAA), Rabobank (AAA), and JP Morgan (AA-) for bond issuance in Saudi Arabia.
Therefore, specialists view this bond issuance by Korea Eximbank as a very rare case.