HSBC, acting as custodian and agent lender, has completed the first securities lending transaction in the Kingdom of Saudi Arabia, as part of a concerted effort by the country’s regulators to kickstart an active financing market.
The transaction involved an unnamed large regional asset owner, enabling HSBC, in its role of prime broker, to borrow Saudi Arabian equities from the asset owner and provide access to the kingdom’s burgeoning equities market for an also unnamed global institutional investor.
The deal marks a key milestone for the kingdom’s capital markets and its Saudi Vision 2030, with the financial sector as one of its central pillars, that will lift the country into the top-10 financial markets globally.
More broadly, the Saudi Vision 2030 aims to reduce the country’s dependence on oil, diversify its economy, and develop public service sectors such as health, education, infrastructure, recreation, and tourism.
Today, the Tadawul is already among the top-10 exchanges in the world, with securities valued at around $2.4 trillion.
Madhur Bhandari, head of securities services at HSBC Saudi Arabia, predicts the first-of-its-kind transaction for the Saudi Arabian market to become one of many.
Adnan Hussain, global head of agency securities lending at HSBC, says: “Saudi Arabia’s opening up of its capital markets to securities lending for the first time not only allows us to help asset owners receive potentially higher returns from their Saudi investments, but also facilitates more liquidity into the market and enhance price discovery.”
Loic Lebrun, global head of prime finance at HSBC, adds: “As the borrower of a broad range of Saudi equities from a large regional asset owner, HSBC is providing access to the Saudi market for our global clients.
“It was the first securities lending transaction in the Saudi market, and represents a key way of further developing and deepening the Kingdom’s capital markets, in line with Saudi Vision 2030.”
Since the Capital Markets Authority of Saudi Arabia started permitting foreign investors to directly access its capital markets in 2015, the extent and pace of developments have accelerated.
Saudi stocks are now included in the FTSE Russell and MSCI emerging markets indices, and there have been consistent enhancements to the kingdom’s regulatory framework and market infrastructure, including new securities lending rules.
The global securities lending market also sees Saudi Arabia as a key growth market for the region and the International Securities Lending Association is among international players seeking to act as handmaiden in the market’s development.
