Saudi Arabia seeks to reassure investors after royal purge
Saudi Arabia sought to reassure investors on Tuesday that a sweeping anti-corruption purge would not affect businesses, including those with ties to arreted suspects, as authorities appeared to widen the crackdown.
Dozens of high-profile figures including princes, ministers as well as billionaire tycoon Al-Waleed bin Talal were arrested at the weekend, in the biggest purge of the kingdom""""s elite in modern Saudi history.
The crackdown has triggered uncertainty among businesses that could intensify capital flight or derail reforms, experts say, at a time when the kingdom is seeking to attract badly needed investments amid a protracted oil slump.
Authorities have frozen the bank accounts of the accused and warned that any assets related to the corruption cases would be seized as state property.
"It is worth clarifying that concerned individual accounts rather than their corporate businesses have been put in suspension until final court rulings," central bank chief Ahmed Abdulkarim AlKholifey said in a statement.
"In other words, corporate businesses remain unaffected. It is business as usual for both banks and corporates," he said, adding that there were no restrictions on money transfers through legal banking channels.
Separately, Saudi commerce minister Majid al-Qasabi said that companies, including those owned by the arrested elites, will be accorded "full protection" under the law.
Among those being held are billionaire Prince Al-Waleed bin Talal, Waleed al-Ibrahim, owner of the influential Arab satellite network MBC, as well as construction tycoon Bakr Bin Laden and billionaire Saleh Kamal.
Local media has reported new arrests of well-known businessmen since the weekend crackdown, including Naser bin Aqeel al-Tayyar, the founder of one of Saudi Arabia""""s biggest travel companies
In a statement to Saudi stock exchange, his company said it was aware of reports of Tayyar""""s arrest, adding it confirms the "continuation of business to serve the interests of shareholders and customers".
With the purge, which analysts describe as a bold but risky power play, Crown Prince Mohammed bin Salman appears to have centralised power to a degree that is unprecedented in recent Saudi history.
US President Donald Trump has voiced support for the crackdown, saying some of those arrested had been "milking their country for years".
Saudi central bank says corruption probe not hurting companies, banks
2 MIN READ
DUBAI (Reuters) – Saudi Arabia’s central bank sought to reassure the business community on Tuesday that a sweeping anti-corruption investigation would not hurt the economy, saying companies and banks could operate as normal.
At the request of the attorney-general, the central bank is freezing personal bank accounts of suspects pending court rulings on their cases, but it is not suspending operations of their companies, the bank said in a statement.
“In other words, corporate businesses remain unaffected. It is business as usual for both banks and corporates,” the central bank said, adding that there were no restrictions on money transfers through proper banking channels.
Dozens of royal family members, officials and business executives have been detained in the crackdown and are facing allegations of money laundering, bribery, extorting officials and taking advantage of public office for personal gain.
Commercial bankers told Reuters earlier on Tuesday that Saudi banks had frozen more than 1,200 accounts on the central bank’s instructions and that the number was continuing to rise almost hourly.
This has raised fears among businessmen that payments of outstanding debts could be delayed and that day-to-day activities of some companies, such as paying staff and creditors, might be hindered.
The share prices of some companies linked to detained tycoons have plunged about 20 percent in the past three days.
NOVEMBER 7, 2017 / 11:02 PM / UPDATED 12 HOURS AGO
Saudi says companies with ties to corruption suspects will not be disrupted: state news
1 MIN READ
RIYADH (Reuters) – Saudi Arabia’s crown prince directed ministers on Tuesday to ensure that national and multinational companies, including those wholly or partly owned by individuals under investigation in sweeping anti-corruption probe, were not disrupted.
“The Council recognized the importance of these companies for the national economy, and the importance of ensuring that investors could operate with confidence in Saudi Arabia,” the state news agency said in a report.
Saudi Arabia Says Only Private Accounts Suspended in Crackdown
November 7, 2017, 1:58 PM GMT+3 Updated on November 8, 2017, 7:47 AM GMT+3
Saudi Arabia said it has only frozen the bank accounts of individuals and not those of the companies they own or manage, as the kingdom seeks to ease tension among global investors over a crackdown that’s seen princes and billionaires arrested.
The action, described by Saudi authorities as an anti-corruption drive, applies only to individual accounts held by “persons of interest,” and not to corporate ones, Saudi Arabian Monetary Authority Governor Ahmed Abdulkarim Alkholifey said in a statement on Tuesday. “It is business as usual for both banks and corporates,” he said, adding that there are no restrictions on money transfers “through proper banking channels.”
The arrests, which included Prince Alwaleed bin Talal, one of the world’s richest men and a shareholder in such global companies as Citigroup Inc. and Apple Inc., have reverberated across board rooms and financial institutions in the biggest Arab economy and globally.
Earlier, three people with knowledge of the matter said the central bank ordered banks in the kingdom to freeze the accounts of dozens of individuals who aren’t under arrest. Already, as much as $33 billion in personal wealth belonging to the richest detainees has been put at risk.
More may be on the way: The regulator sent a list of hundreds of names to lenders, telling them to freeze any accounts linked to them, two of the people said. They asked not to be identified because the information is private. The Saudi attorney general said in a statement released Monday that weekend arrests of princes, businessmen and officials were only “phase one” of the anti-corruption drive.
The detentions drew support from President Donald Trump but also raised concern among analysts that a power grab was underway. In all, 11 princes, four ministers and dozens of former ministers and well-known businessmen were taken into custody, according to Saudi media and a senior official who spoke on condition of anonymity.
The arrests were under the auspices of an anti-corruption commission that King Salman set up on Saturday, headed by his son and heir, Prince Mohammed bin Salman. The king also dismissed Prince Miteb bin Abdullah from his post as head of the powerful National Guard, taking out one of the last princes who had survived a series of cabinet reshuffles promoting allies of the crown prince.
The events have reinforced speculation that King Salman was clearing any remaining obstacles to his son’s accession to the throne. But they were also lauded by many Saudis bearing the brunt of low oil prices who have long complained that the kingdom’s elite was above the law.
The benchmark Tadawul All Share Index fell as much as 3.1 percent on Monday before trimming losses to 0.7 percent in Riyadh. Prince Alwaleed’s Kingdom Holding plummeted 10 percent; it’s down 21 percent since the arrests.
“It’s almost the equivalent of arresting Bill Gates to have Prince Alwaleed bin Talal under arrest,” Robert Jordan, former U.S. ambassador to Saudi Arabia, told Bloomberg TV on Monday.
A genuine push against corruption would add to the credibility of Prince Mohammed’s push to prepare the economy for the post-oil era, including selling a stake in Saudi Aramco and bolstering non-oil revenue, he said. “If it turns out to simply be a power grab, then I think it’s going to hurt the Saudis in the long run, and certainly hurt this crown prince.”
The crackdown also comes amid an escalation in tensions between Saudi Arabia and Shiite-ruled Iran, its chief regional rival.
Pro-Iranian Yemeni rebels fired a ballistic missile on Saturday that targeted Riyadh’s international airport for the first time, a move Saudi officials said could amount to an “act of war” by the Islamic Republic. Iranian officials denied any involvement. Earlier that day, Lebanese Prime Minister Saad al-Hariri — a Saudi ally — unexpectedly resigned in a speech from Riyadh, blaming Iran for destabilizing his country.
Arab Stocks Sink Most in World as Rising Political Tension Bites
“Investors have been hammered with bad news on the geopolitical front,” said Nabil Al Rantisi, the managing director of Abu Dhabi-based Mena Corp. Financial Services. “It’s not easy to see what is coming next.”
Saudi Arabia has welcomed Trump’s promise of a tougher policy against Iran, which he has described as a “rogue state.” Trump’s backing came in a tweet Tuesday morning from Japan.
“I have great confidence in King Salman and the Crown Prince of Saudi Arabia, they know exactly what they are doing,” the president said.
A senior Saudi official denied the crackdown had any other purpose than to fight corruption. The accused “will be subject to investigation according to the regular procedures adopted in the Kingdom,” he said.
According to the official, the charges against Prince Alwaleed include money laundering, bribery and extortion of some officials. Prince Miteb is charged with embezzlement, fraudulent employment and the awarding of projects to his own companies. Another royal family member, Prince Turki bin Abdullah, is accused of corruption related to a train project, using his influence to win projects for companies affiliated to himself, the official said.
Saudi Arrests Fail to Spook Bond Investors. They""""ve Seen Worse
November 8, 2017, 12:01 AM GMT+3
• Consolidating power in MBS’s hands is positive in long run
For holders of assets in a nation whose rulers are going head-to-head with a clique of billionaires and princes, Saudi Arabia’s bondholders are a pretty sanguine bunch.
While Saudi stocks fell and credit default swaps rose, money managers from MUFG Securities to Aberdeen Standard Investments weren’t rattled because they say the weekend swoop clears the way for accelerating economic and social reforms under Crown Prince Mohammed Bin Salman.
The crackdown “solidifies” the prince’s position, said Timothy Ash, a strategist at Bluebay Asset Management in London. “If he manages to secure the succession, it does enhance his ability to push through the reforms. And, in the end, Saudi Arabia has a very strong balance sheet — not much debt, a big cash reserve, the ability to borrow, assets to sell, and clearly they have a reform agenda.”
The government arrested princes, officials and billionaires, including Prince Alwaleed bin Talal, one of the world’s richest men and a shareholder in global companies such as Citigroup Inc. and Apple Inc, as part of what authorities say is a drive to fight corruption. The scale of the purge stunned investors across the six-nation Gulf Cooperation Council as concern spread of over who might be targeted next.
The central bank ordered Saudi lenders to freeze the accounts of dozens individuals who aren’t already detained, according to three people with knowledge of the matter.
Read More: Saudi Crackdown Widens as More Bank Accounts Said Frozen
But such events are normal in emerging markets, says Ekaterina Iliouchenko, a senior portfolio manager at Union Investment Privatfonds GmbH in Frankfurt. In the past 18 months alone, Turkey has arrested thousands of civil servants after a failed coup, Brazil’s president has fought corruption charges and South Africa’s President Jacob Zuma has been fending off attempts to unseat him.
Bonds vs Stocks
The Tadawul All Share Index fell as much as 3.1 percent on Tuesday, the most in a year. Bonds fell for a second day, driving the yield on the government’s dollar debt due 2026 to 3.56 percent, the highest level since May.
Read More: Arab Stocks Sink Most in World as Rising Political Tension Bites
“Credit could probably perform better than equity, to some extent, given that the arrests obviously create uncertainty in the business environment and for shareholders and investors in the country,” said Trieu Pham, a credit strategy analyst for emerging markets at MUFG Securities in London. “For the debt market, if it backs the reform perspective for Saudi Arabia, that should be supportive of Saudi’s bonds.”
Not only is the government overhauling its economy to reduce its reliance on oil revenue, it’s also imposing social changes, which includes allowing women to drive. Prince Mohammed is spearheading the reforms after a plunge in crude prices helped expose the issues that have curbed economic growth.
While the kingdom’s foreign reserves have fallen $260 billion since reaching a high in August 2014, Saudi Arabia still has $478 billion in its coffers.
The crackdown over the weekend may provoke a backlash from the old elite, but “the government is very asset rich and has plenty of liquidity overseas — so investors can take comfort from that side of things,” said Kieran Curtis, who helps oversee $5 billion in emerging-market debt as a fund manager at Aberdeen Standard Investments in London, adding that Saudi spreads look attractive.
The yield on the kingdom’s 2026 bonds is more than 50 basis points above similar-maturity debt of the Philippines, which has lower investment grade scores.
“Compared to other sovereigns in similar rating environment, there is a big pick-up,” he said. “We’re reasonably positive on Saudi.”
Prince Alwaleed $1.2 Billion Poorer Since Saudi Corruption Purge
Dana El Baltaji
November 7, 2017, 9:25 AM GMT+3
• Net worth retreated to $17.8 billion at close on Monday
Prince Alwaleed bin Talal is still very wealthy, but even the mega-rich would balk at losing more than $1 billion in 48 hours.
His net worth fell to $17.8 billion after the market value of the Saudi investment firm he founded plummeted $1.3 billion this week. Kingdom Holding Co.’s stock closed on Monday at the lowest level since December 2011.
Read More: Alwaleed, Caught in Saudi Purge, Has Assets Across the World
Alwaleed is among dozens of princes, ministers and current or former senior officials who were arrested Saturday night on orders from a newly established anti-corruption committee headed by Crown Prince Mohammed bin Salman. The detainees include three of the country’s richest people.
For Investors, Saudi Crackdown Sparks Hope, Risks Uncertainty
The moves raised the stakes for global investors the kingdom is courting for its economic overhaul
Saudi Crown Prince Mohammed bin Salman, center, and Christine Lagarde, head of the International Monetary Fund, left, attended an investment conference in Riyadh last month. PHOTO: FAISAL AL NASSER/REUTERS
Nicolas Parasie in Dubai and
Julie Wernau in New York
Updated Nov. 6, 2017 6:46 p.m. ET
A far-reaching crackdown that extends into Saudi Arabia’s business elite has abruptly raised the stakes for global investors just as the kingdom embarks on a campaign to lure foreign capital to help overhaul its oil-dependent economy.
Dozens of princes, senior Saudi officials and prominent businessmen were arrested over the weekend as part of what the government cast as an effort to root out corruption. Prince al-Waleed bin Talal, a billionaire whose firm holds significant stakes in Apple Inc.,Citigroup Inc. and Twitter Inc. , was among those detained. An attempt to reach him through the firm, Kingdom Holding Co. , was unsuccessful.
The crackdown comes at a delicate moment for Saudi Arabia. Crown Prince Mohammed bin Salman, the 32-year-old son of King Salman, is leading efforts to diversify the economy. Central to that strategy are plans for an initial public offering of shares in the state-owned oil giant, known as Aramco. The kingdom is also maneuvering for regional influence with rival Iran, and mired in a war in neighboring Yemen.
Now, investors confront distinct potential outcomes from the crackdown: a Saudi business environment that is less opaque and easier for outsiders to navigate, or an increased risk of political upheaval or legal uncertainty.
“What’s confusing for Western investors is that [the purge] is achieving modernization and Westernization through some very aggressive means,” said Christopher Johnson, chairman of the American Business Group of Riyadh, which promotes and represents U.S. business interests in the kingdom.
President Donald Trump tweeted from Asia on Tuesday that he has great confidence in King Salman and the crown prince, saying “they know exactly what they are doing.” He added in another tweet that “Some of those they are harshly treating have been “milking” their country for years!”
King Salman shook up the kingdom’s succession plan in June by removing the then-crown prince and elevating his son. Since then, the kingdom has taken steps to show it is opening up to the world.
In September, the king issued a decree giving Saudi women the right to drive, a move that was condemned by Saudi conservatives and welcomed by the U.S. Two weeks ago, Prince Mohammed presided over an investment conference dubbed “Davos in the Desert” that attracted luminaries from the global financial community such as Christine Lagarde, the head of the International Monetary Fund, and billionaire entrepreneur Richard Branson. At the event, the crown prince called for Saudi Arabia to return to a more tolerant form of Islam.
Mr. Johnson and some foreign investors predicted the Saudi government’s crackdown would result in a more open and welcoming business environment in Saudi Arabia.
“There are always powerful vested interests, which resist change and which need to be dislodged in order to effect change,” said Jan Dehn, head of research at fund manager Ashmore Group in London, which opened a local asset management office in Riyadh in 2014. “Mohammed Bin Salman is going to change Saudi Arabia more than people imagine—and for the better.”
Who Has Been Promoted, Who Has Been Detained in Saudi Arabia
Yet the crackdown is touching prominent members of Saudi society. Among the detainees is Ibrahim Al-Assaf, the country’s former finance minister and a member of the Aramco board of directors, according to Saudi officials. An attempt to reach Mr. Al-Assaf through Aramco was unsuccessful.
And it could create new potential sources of uncertainty for investors.
“The speed and breadth of the clampdown could deal a blow to the economy,” Jason Tuvey, a Middle East analyst at Capital Economics, a London-based economic-research firm, wrote in a note to clients on Monday. “Firms might delay investment plans as they await to see if they will get caught up in the allegations.”
There are signs that investors are wary. Oil prices surged to two-year highs on Monday, with U.S. crude prices up 3.1% to $57.35 a barrel. Saudi Arabia is the world’s top crude exporter.
The cost to insure against the risk of default in Saudi Arabia and elsewhere in the Middle East rose on Monday, as measured by the market for credit default swaps.
“It’s a lot of change really fast in a region that isn’t really prone to a lot of quick change. And that causes a lot of uncertainty,” said Jason Trujillo, a portfolio manager at Invesco Ltd. in Atlanta.
Invesco has been broadly negative on the Middle East since several countries including Saudi Arabia cut off diplomatic relations with the tiny Gulf emirate of Qatar in June, Mr. Trujillo said.
Many executives whose companies are active in Saudi Arabia were reluctant to discuss the arrests for what they said was fear of losing business in the kingdom in the near future. Most were still trying to make sense of the events of recent days.
“We follow with much attention what is happening on the ground and are trying to obtain more information,” said an executive at an international company active in Saudi Arabia in which Mr. al-Waleed’s Kingdom Holding is a prominent investor.
Kingdom Holding, whose shares have fallen sharply over Sunday and Monday, said on Sunday it was “business as usual” and that it still has the government’s support.
Corrections & Amplifications
An earlier version of a graphic depicting Saudi Arabia’s royal family tree included an incorrect photo for Prince Abdulaziz bin Saud bin Nayef, Saudi Arabia’s interior minister. The photo incorrectly showed Saudi Arabia’s ambassador to the U.S. (Nov. 7, 2017)
Write to Nicolas Parasie at email@example.com and Julie Wernau at Julie.Wernau@wsj.com
Saudi billionaire Alwaleed""""s arrest rattles investors
By Zahra HankirBusiness reporter, BBC News
• 6 November 2017
Investors are reacting badly to the arrest of Saudi billionaire Prince Alwaleed bin Talal, one of the world""""s wealthiest men.
Shares of Kingdom Holding, Prince Alwaleed""""s investment vehicle, sank for a second day after the chairman was targeted in an anti-corruption sweep.
The billionaire was one of 11 princes arrested by a new anti-corruption body headed by the Saudi Crown Prince.
Prince Alwaleed holds shares in Citigroup, Twitter and Apple.
Saudi princes among dozens detained in """"corruption"""" purge
Mohammed bin Salman, power behind the throne
Riyadh""""s night of long knives and long-range missiles
"From a sentiment perspective, this will hurt the businesses associated with the prince," said Nabil Rantisi, the managing director of brokerage at Menacorp, a United Arab Emirates investment firm.
"Major investors may shy away from these companies for a while until they have more clarity on the outcome of the situation".
Analysts are speculating that 32-year-old Mohammed bin Salman, heir apparent to the Saudi throne, is consolidating power and asserting his control over the oil-rich kingdom.
The sizes of Prince Alwaleed""""s holdings in Twitter and Apple have not been disclosed by Kingdom Holding as he has been secretive about his international investments over the years.
Among the prince""""s other global holdings is Citigroup, in which he has owned shares since 1991, mass media corporation Twenty-First Century Fox and ride-sharing firm Lyft. The prince also owns the majority of Rotana Group, the Arab world""""s largest entertainment company, and London""""s Savoy hotel.
Over the weekend, security forces arrested dozens of former top officials and ministers within hours after King Salman bin Abdulaziz Al Saud""""s decision to crack down on corruption.
Prince Alwaleed""""s whereabouts are currently unknown. Some of the detainees are being held at five-star hotels across Riyadh, the Associated Press reported, citing a Saudi official.
Saudi Arabia""""s finance ministry has said "firm decisions" by the anti-corruption committee will "help to reinforce the investment environment in the kingdom".
Shares in Al Tayyar Travel Group, a Riyadh-based travel company, also tumbled after non-executive board member Nasser bin Aqeel al-Tayyar was arrested in the sweep.
Investors are "extremely concerned by the weekend""""s events and we""""ll see further falls on Kingdom Holding in particular as it""""s very hard to define what the company is without Prince Alwaleed," said Marcus Chenevix, a Middle East analyst at TS Lombard.
"The government is evidently struggling to find political equilibrium. This was a drastic move and it""""s hard to see that there won""""t be aftershocks following the earthquake."
Kingdom Holding has not responded to emails seeking comment on Prince Alwaleed""""s detention. The stock has lost more than 11% in the past two days, and is currently trading at its lowest level since 2011.
"No one knows how long this is all going to take and no one knows if the prince is going to come out of it the way he entered," Menacorp""""s Mr Rantisi said.
Any investor reaction to the arrests may be premature, however, as "in the medium to long run, if the Saudis are able to link corruption to whoever was detained and if they sort the mess out, the move will ultimately create more transparency and could attract more foreign investment to the kingdom than ever before", he added.
The price of oil reached a two-year high after the crackdown. Saudi Arabia is the world""""s biggest exporter of crude oil and the second-largest producer of the commodity.
Brent crude oil hit $62.90 a barrel on Monday, the highest level for 28 months.
Earlier this month, Forbes said Prince Alwaleed had an estimated net worth of about $17bn (£13bn), making him the 45th richest man in the world.
RPT-Reform or risk? Saudi Arabia investors try to read the runes
5 MIN READ
(Repeats story published on Monday)
By Davide Barbuscia and Karin Strohecker
DUBAI/LONDON, Nov 7 (Reuters) – Investors hope the sweeping anti-graft probe ensnaring some of Saudi Arabia’s top politicians and businessmen is a sign of reform but those holding its bonds worry about instability.
Saudi stocks recovered their losses after the wave of arrests over the weekend, but bonds came under pressure as investors pondered the outlook for the kingdom.
Saudi Arabia embarked on an ambitious reform programme including fiscal reforms and a massive privatization programme 16 months ago in a quest to shift its $690 billion economy away from dependency on oil and entice investors.
King Salman announced late on Saturday the creation of a new anti-corruption committee chaired by Crown Prince Mohammed bin Salman. In hours that followed, news emerged that dozens of politicians and a number of senior princes – including billionaire Prince Alwaleed bin Talal – had been detained on corruption charges.
“In times of fundamental change it is to be expected that it won’t be a smooth ride – it never is,” said Roy Scheepe, senior portfolio manager for emerging market debt at NNIP, who holds some Saudi debt.
“But the notion that even countries like Saudi can’t go on indefinitely in the old way, but also has to act on diversifying its economy and future revenue sources, is welcome.”
The purge rattled Saudi stock markets in the first hours of trading on Sunday, as some investors feared that those caught in the crackdown could be asked to dump their assets.
But equities rebounded later in the day, as the government’s move was seen as strengthening the crown prince’s authority and his ability to push through economic reforms. The main stock index has risen 0.5 percent since Thursday’s close.
“It is a positive development … we see it as part of the transformation of Saudi into a more modern economy,” said Fabiana Fedeli, head of global fundamental equities at Robeco in the Netherlands, adding that the pull-back had been limited.
“At this point in time, one needs to give them the benefit of the doubt that this latest move will also be in the direction (of modernisation). However, we need more clarity on what happened.”
Hasnain Malik, global head of equity research at investment bank Exotix Capital, agreed that the consolidation of power was necessary, at least in the short term.
“Further out, economic performance will ultimately determine how the grip on power is loosened,” he said.
However, bond investors took a more cautious view. Saudi Arabia’s dollar-bonds came under pressure as well as the country’s debt risk, measured by the cost of insuring against a possible debt default.
Yields on the $6.5 billion dollar-denominated bond maturing in 2046 widened about 8 basis points.
Saudi Arabia’s five-year credit default swaps widened by only a couple of points in the early hours of trading, moving to 84 basis points from 82 bps at Friday’s close, still far below the 117 bps level reached in July, according to IHS Markit data .
“This is about political instability, not about corruption,” said Marcus Chenevix, MENA analyst at TS Lombard, adding the arrest of Prince Alwaleed was “hugely concerning”.
“What it tells investors is that Saudi politics can’t be ignored. And that’s worrying because Saudi politics is a black box.”
Given the lack of detail on the arrests as the crackdown widened on Monday, some fund managers expected no let up for Saudi bonds.
“Spreads are likely to drift wider as investors wait for additional colour on the arrests,” said Janelle Woodward, president and portfolio manager at Taplin, Canida and Habacht, part of BMO Financial Group, who holds Saudi debt.
But for others, such as Carmen Altenkirch, emerging market sovereign analyst at Axa Investment Managers, it was time to look past the current events.
“While the young prince’s brash approach to politics may sit uncomfortably with those used to a subtler from of politicking, the corruption clampdown is merely the next piece in the puzzle that should ultimately see the 32-year old prince take power when the king abdicates,” Altenkirch said in a note to clients.
The Saudi riyal also weakened in the forward market, with the 12-month U.S. dollar/riyal forwards quoted as high as 183 points against 129 points last week.
The crackdown came almost two weeks after Saudi Arabia hosted a major investment conference in Riyadh, where it announced big new projects and investment partnerships as part of efforts to diversify the economy away from oil.
According to Raza Agha, MENA chief economist at VTB Capital, the targeting of high-profile business figures could hinder the growth of Saudi’s non-oil economy and have “potentially negative implications for diversification plans that rely heavily on the Saudi private sector.”
Reporting by Davide Barbuscia; additional reporting by Claire Milhench in London. Editing by Andrew Torchia and Giles Elgood
Here’s what the Saudi royal purge means for investors
By Thomas Heath November 7 at 7:55 AM
Oil, oil, oil.
It was on everyone’s lips following news that Saudi Arabia — home to one-fifth of the world’s proven oil reserves — had detained 38 of its wealthiest and most prominent citizens over the weekend as Crown Prince Mohammed bin Salman flexed his grip on power.
The Kingdom of Saudi Arabia has long been considered a bulwark of stability in the Persian Gulf region. But Mohammed’s extraordinary weekend roundup against alleged corruption, including arrests of high-profile Saudi billionaire Prince Alwaleed bin Talal and Bakr bin Laden of the Saudi Binladen construction company, shook investors across the globe.
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There is more than oil prices at stake. Investors worldwide should pay attention to the goings-on in the Gulf, because the events could have ramifications on things as varied as U.S. corporate profits, Wall Street jobs and that dividend they collect on their oil company shares.
Funded by oil prices, the country pays corporations around the globe billions of dollars every year to build its engineering projects, run its oil fields and technology, and provide weapons for its security.
“I would caution any investor right now to wait a minimum of six months to see how this plays out,” said Thomas W. Lippman, an adjunct scholar at the Middle East Institute. “What Saudi Arabia had to offer was stability and continuity, and at the moment, it’s not clear it has either.”
Play Video 1:34
Saudi Arabia is rocked by corruption purge, missile strike and helicopter crash
Dozens of high-ranking Saudi officials were purged over the weekend in what the government is calling a corruption crackdown. Others say it is a move to consolidate the power of Crown Prince Mohammed bin Salman. It’s just one event in a very busy weekend in the Kingdom. (The Washington Post)
[What Saudi purge means for the Middle East]
The turmoil comes at a delicate time.
Saudi Arabia is preparing to make its massive oil reserves available to investors through an initial public offering, perhaps as early as 2018. The IPO of the Saudi Aramco oil company, which could be worth $2 trillion, is so sought after that President Trump took to Twitter last weekend to urge the Saudis to list their giant on the New York Stock Exchange.
“Important to the United States,” Trump tweeted.
Last month, Riyadh hosted the Future Investment Initiative, a high-profile global investor conference that drew dozens of heavy global financial hitters including Richard Branson of Virgin Group, BlackRock chairman Larry Fink and Christine Lagarde of the International Monetary Fund.
CNBC’s coverage of the event featured as a centerpiece Prince bin Talal in an hour-long interview, discussing investments, Aramco and the liberalization of Saudi society being pushed by Prince Mohammed under his Saudi Vision 2030 banner.
People who attended the event said they had no clue that such a dramatic turn of events was right around the corner.
[What the royal purge means for Saudi Arabia — and its oil]
Even so, oil prices climbed on the Saudi chaos over the weekend. Oil was up about 3 percent Monday, with widely held companies such as BP, ExxonMobil and Chevron all in positive territory.
[Saudi Arabia’s crown prince makes a power play at home and abroad]
Some analysts said the Saudi purge might actually have a calming effect on roiling oil markets.
“The price of oil is spiking because of market dynamics, not because people are genuinely worried about the stability of Saudi Arabia,” said Marcus Chenevix, an analyst with TS Lombard. “What this is, is a turn back to absolute rule by one man and away from rule by princes. That is not such a bad idea. In an absolute monarchy that does not have constitutionally guaranteed rights, it is better for our business clients. There is a single ruler making single rules rather than answering to a whole class of princes.”
[Trump urges Saudi oil company to list its stock on NYSE ahead of massive IPO]
Some of the increase is because of cuts in worldwide production championed by Saudi Arabia, as the leader of the Organization of the Petroleum Exporting Countries (OPEC), and by Russia. Those cuts are flowing through the world economy, putting upward pressure on prices.
“Investors are really focusing on Vienna. OPEC meets there at the end of the month,” said John Lynch, chief investment strategist at LPL Financial. “The crown prince’s centralization of power should have more sway with OPEC, which should sustain production cuts. Saudi Arabia clearly has a big voice in OPEC. You are going to see an extension of the reduction cuts.”
If the crown prince can hold on to power, maintain cuts in oil production and keep the price around $60 a barrel or higher, then investors are likely to buy up the Aramco IPO.
Oil companies will be happy as well. BP, which has been ailing since the 2010 Deepwater Horizon disaster in the Gulf of Mexico, beat earnings last week and announced a share buyback program. BP and other oil companies are eager to see a healthy price for a barrel of oil. Much of that hinges on Saudi Arabia’s ability to control OPEC production.
[BP profits rise amid cost cuts, output increase]
“It comes down to if [Mohammed] wins,” said Helima Croft, head of commodity strategy at RBC Capital Markets. “If he wins, they list Aramco and people will say, ‘He is a visionary.’ Only if he loses will people question the stability of the state.”
Croft said the next two weeks could be telling.
Saudi Arabia’s economy is dependent on the price of oil, but much else flows from the oil, reaching all the way to corporate America. U.S. companies are some of the biggest clients of the desert kingdom.
“When you sack the minister of the economy and you arrest two of the most prominent business personalities in the country, Binladen and Al-Waleed, that’s bound to make people think: ‘Wait a minute. Do I want to jump into this pool right now?’ ” Lippman said.
He explained, “I’m talking about the international corporations that take on projects and contracts in Saudi Arabia as partners with the Saudis.” He said Dow Chemical, aluminum giant Alcoa and chocolate maker Mars all have a significant presence in Saudi Arabia.
“Right now there is uncertainty,” Brian Youngberg, an Edward Jones analyst, said. “If there is long-term uncertainty, it could discourage Western companies from investing in Saudi Arabia as they are trying to diversify.”
Chenevix, the TS Lombard analyst, said the corruption crackdown will definitely affect investment.
“As we saw with the Qatar crisis, as the controversy comes to the surface, investors will realize the political risk of the Gulf coast states,” he said. Last summer, several counties including Saudi Arabia cut diplomatic relations with Qatar and imposed trade and travel bans, alleging that Qatar was a supporter of terrorism.
Chenevix said fixed-income investors will see a decline in Saudi bonds.
“Your fixed-income assets in Saudi Arabia will be worth less,” he said, “because basically they have been underpricing political risk.”
UPDATE 3-Saudi mass arrests jolt markets but many see overdue swoop on corruption
* Trump endorses crackdown on those "milking" Saudi Arabia
* Detainees include global investor Prince Alwaleed
* Gulf markets dip on investor jitters over purge
* Crown Prince Mohammed bin Salman seen amassing power
(Updates U.S. State Department comment)
By Katie Paul and Stephen Kalin
RIYADH, Nov 7 (Reuters) – All major Gulf stock markets slid
on Tuesday on jitters about Saudi Arabia""""s sweeping anti-graft
purge, a campaign seen by critics as a populist power grab but
by ordinary Saudis as an overdue attack on the sleaze of a
U.S. President Donald Trump endorsed the crackdown, saying
some of those arrested have been "milking" Saudi Arabia for
years, but some Western officials expressed unease about the
possible reaction in Riyadh""""s opaque tribal and royal politics.
Authorities detained dozens of top Saudis including
billionaire Prince Alwaleed bin Talal in a move widely seen as
an attempt by Crown Prince Mohammed bin Salman to neuter any
opposition to his lightening ascent to the pinnacle of power.
Admirers see it as an assault on the endemic theft of public
funds in the world""""s top oil exporter, an absolute monarchy
where the state and the ruling family are intertwined.
"Corruption should have been fought a long time ago, because
it""""s corruption that delays society""""s development," Riyadh
resident Hussein al-Dosari told Reuters.
"God willing, everything that happened … is only the
beginning of what is planned," said Faisal bin Ali, adding he
wanted to see "correcting mistakes, correcting ministries and
correcting any injustices against the general population."
But some analysts see the arrests as the latest in a string
of moves shifting power from a consensus-based system dispersing
authority among the ruling Al Saud to a governing structure
centred around 32-year-old Prince Mohammed himself.
Investors worry that his campaign against corruption –
involving the arrests of the kingdom""""s most internationally
known businessmen – could see the ownership of businesses and
assets become vulnerable to unpredictable policy shifts.
Saudi banks have frozen more than 1,200 accounts belonging
to individuals and companies in the kingdom and the number keeps
rising, bankers and lawyers said.
The authorities sought to reassure the business community
late on Tuesday, with the central bank saying it was freezing
suspects"""" personal bank accounts at the request of the attorney
general but not suspending operations of their companies.
"In other words, corporate businesses remain unaffected. It
is business as usual for both banks and corporates," the bank
said in a statement, adding there were no restrictions on money
transfers through proper banking channels.
A separate statement said Prince Mohammed had directed a
powerful ministerial committee, the Council for Economic Affairs
and Development, to ensure that national and multinational
companies, including those wholly or partly owned by individuals
under investigation, were not disrupted.
"The Council recognised the importance of these companies
for the national economy, and the importance of ensuring that
investors could operate with confidence in Saudi Arabia," the
state news agency SPA said.
In Washington, Heather Nauert, spokeswoman for the U.S.
State Department, said it had urged Saudi Arabia to undertake
any prosecutions of corruption suspects in a "fair and
She said the United States had received assurances from the
Saudi government that it would do so. But another U.S. official
later told reporters she had misspoken and that they had no such
assurances that they could discuss in public.
The Saudi stock index .TASI sank 0.7 percent in heavy trade,
led by shares in companies linked to people detained in the
The market, which was down 3.1 percent at one stage, would
have finished much lower without apparent buying by
government-linked funds seeking to prevent a panic, fund
managers said. A mass pull-out of foreign funds was not
Among the companies, Prince Alwaleed""""s Kingdom Holding
plunged by its 10 percent daily limit, bringing its
losses in the three days since the investigation was announced
to 21 percent. The fall has wiped about $2 billion off his
fortune, previously estimated by Forbes magazine at $17 billion.
In Dubai, where Saudis have been significant investors, the
index slipped 1.8 percent. The index in Abu Dhabi
, less exposed to Saudi money, fell only 0.4 percent. But
Kuwait continued to slide, its index losing 2.8 percent.
The show of investor nerves coincided with sharply
heightened strains between Riyadh and Tehran, reflected in a
fresh denunciation of adversary Iran by Prince Mohammed over its
role in Yemen, and by continuing mutual acrimony over political
turmoil in Lebanon, another cockpit of Iranian-Saudi rivalry.
Displaying an apparently undimmed taste for navigating
several challenges simultaneously, Prince Mohammed said Iran""""s
supply of rockets to militias in Yemen is an act of "direct
military aggression" that could be an act of war.
He was speaking in a phone call with the British foreign
minister after Saudi forces intercepted a ballistic missile they
said was fired towards Riyadh on Saturday by the Houthis.
A Saudi-led coalition, which backs Yemen""""s
internationally-recognised government, has been targeting the
Houthis in a war which has killed more than 10,000 people and
triggered a humanitarian disaster in one of the region""""s poorest
Iran has denied it was behind the missile launch, rejecting
the Saudi and U.S. statements condemning Tehran as "destructive
and provocative" and "slanders".
The coincidence of heightened Saudi-Iranian tensions and
Saudi domestic political upheaval has stirred unease among some
Western governments and analysts about the emergence of an
impromptu policy-making style under Prince Mohammed and turmoil
in a region traditionally seen as a haven of stability.
"He seems to be pushing the creation of a personalised
system of rule without the checks and balances that have
typically characterised the Saudi system of governance," wrote
Marc Lynch, professor of political science and international
affairs at George Washington University, in the Washington Post.
"In both domestic and foreign affairs, he has consistently
undertaken sudden and wide-ranging campaigns for unclear reasons
which shatter prevailing norms."
PIVOTAL POWER BASE
Among those held in the anti-graft purge was Prince Miteb
bin Abdullah, who was replaced as minister of the National
Guard, a pivotal power base rooted in the kingdom""""s tribes. That
recalled a palace coup in June that ousted Mohammed bin Nayef,
known as MbN, as heir to the throne.
MbN made his first confirmed public appearance since then at
the funeral for Prince Mansour bin Muqrin, deputy governor of
Asir province, who was killed in a helicopter crash on Sunday.
No cause has been given for the crash.
A photo shared online by a state media photographer showed
MbN greeting another royal at the first major family gathering
since the anti-corruption sweep began.
The crackdown removed any remaining political counterweights
to the crown prince, according to Steffen Hertog, a Saudi
scholar at the London School of Economics.
"This allows for fast decision-making and reduces costly
involvement of princes in state contracts, but also potentially
reduces internal criticism and review of new policy
initiatives," he said.
A former senior U.S. intelligence official cautioned that
given the National Guard""""s loyalties, Prince Mohammed could face
a backlash. "I find it difficult to believe that it (National
Guard) will simply roll over and accept the imposition of new
leadership in such an arbitrary fashion," he said.
But the purge may go some way to soothing public disgust
over financial abuses by the powerful, some Saudis say.
"There is no doubt that it (the detentions) soothes the
anger of the regular citizen who felt that such names and senior
leaders who appeared in the list were immune from legal
accountability," said Saudi-based political analyst Mansour
"Its spread to the general population is evidence that no
one is excluded from legal accountability, and this will
eventually benefit the citizen and (national) development."
(Reporting by Gulf team and Arshad Mohammed in Washington;
writing by William Maclean; editing by Mark Heinrich)