RAJIV SHUKLA

Saudi Arabia 2021 | FINANCE | VIP INTERVIEW

TBY talks to Rajiv Shukla, CEO of HSBC Saudi Arabia, about the effects of the pandemic, developments in the market, and expectations for the coming year.

How has the pandemic impacted your operations over the past 12 months, and how have you adapted to the new reality?

Everyone was forced to adapt, some successfully and some not so much. Among the first things we did was to invoke our contingency planning, but no rulebook had a chapter on pandemics so a lot had to be adapted as we went along. Being part of an international group helped, as we benefited from lessons elsewhere in the world and resulting guidance. Given our systemic position in the local markets, our focus was to continue supporting our clients' needs and keeping the markets functional, while of course also keeping our staff safe and able to deliver even on remote basis. We intensified communication with our clients, including the government, and ensured our deliverables to the clients – big or small - and markets did not suffer. Our operational support turned out to be extremely resilient, and we were able to achieve full working-from-home while still being fully available to our clients and counterparties, and able to channelize our local and global resources as needed. Support of our local and global shareholder-partners ensured that our automation and digitization was accelerated, and clients were not impacted with the shift to our modified way of working. So for us, we were able to adapt to the pandemic and achieve business-as-usual very quickly. Apart from continuing to seamlessly execute some of the strategic transactions we have been involved in, this included sponsorship and speaking at key Saudi-focused events, such as the FII and Euromoney Saudi conferences.

Was the impact contained, or was there a significant dip in activity due to the volatility in markets?

We actually spotted many more opportunities as far as investment banking goes. Given our on-the-ground model supported by local and global network, we were better able to support large clients and the government in their Vision 2030 targets, and continued to support transformational activity without a blip. For instance, in the very first month of the outbreak, the Kingdom was involved in issuing a large multi-billion-dollar bond. We were leads on the issuance, and were able to guide it to success, including then issuing one in a tranche with the longest issued tenor of 40 years, which held up well in aftermarket. We also participated in a large syndicated loan financing for a GRE (government related entity) totaling USD10 billion. Having spotted the market opportunity, we pitched to key bank clients on the advantage of Tier 2 issuances. We did a few of those across the local and international markets, such issuances augmenting bank capital in addition to raising financing. We did the first 'green' sukuk out of Saudi Arabia, for Saudi Electricity Company, and the first 'green' ECA (Export Credit Agency) loan for the Kingdom's Ministry of Finance - in fact, the first for a sovereign in the entire MENA region. We advised PIF (Public Investment Fund) in an M&A situation, co-investing with a Chinese investor into a port operator locally. We also advised on the largest-ever trade in the history of the Saudi Arabian market: the sale of SABIC shares by PIF to Saudi Aramco, and being the sole bank to cross the trade in the market. Similarly, we advised on the first government-led privatization for Saudi Grains Organization (SAGO), in line with the timeline put in place prior to the pandemic. We advised Saudi Electricity Company also on the conversion of its government liabilities, about USD45 billion equivalent in terms of size, into an equity-like non-dilutive shariah-compliant financial instrument. We also handled a number of cross-border M&A deals and successfully completed the first wave of the government NCP (National Centre of Privatisation)-led PPP (Public Private Partnership) transactions for the construction of circa 60 schools. HSBC also helped kick-start the derivatives market on the exchange, and was the only foreign institution to be part of that initial set of banks at launch, and having provided a great deal of support to the market participants to reach that stage. We continue to help the market push developments on several fronts, for instance having done the first securities borrowing and lending trade, and more recently the first short selling trade. All these were done during the pandemic, and we hope to continue trailblazing on many other firsts as well while supporting the Kingdom's Vision 2030 agenda.

Will this open up a myriad of opportunities for you in the post-pandemic era? What strategic visions have been brought to the agenda because of it?

The pandemic has brought out the wisdom of Saudi Arabia's transformation and diversification agenda; to some extent, it even further solidified the country's intent to continue down this path. In terms of strategic shifts, it will accelerate privatization and financings across the board, whether in PPP, debt, or corporate modes. We will continue to be involved and support with a longer-term approach, and we are conscious of not being seen just as transactionally-focused. We are conscious that ultimately, the objective of privatization in the Kingdom is not so much to raise financing, but to be transformational and achieve diversification and acquire capabilities and technology via the transaction. We are approaching it in that spirit as well, engaging globally with our teams to attract the right kind of partners and investors. We see a great deal of transformation in the sector around fundraising, privatizations, and PPPs —across hard as well as soft infrastructure, across healthcare and education among others. Privatisations and PPP transactions are accelerating financing diversification as well, whether for buyout or leveraging. From a long-term and strategic perspective, we can absolutely add value in all these areas. And we have a great deal of value to add: for instance, on the PPP front, we are the only investment bank, local or international, with a dedicated infrastructure advisory team based in the Kingdom.

What are your expectations over the next year?

I do not expect things to return to the pre-pandemic “normal.” Digitalization has 'tasted blood', as they say, and will accelerate. We already have a policy in place that allows for remote working, even post-pandemic: if the employee wishes and manager allows, they can work entirely remotely. As such, post-pandemic, there will certainly be a different way of working, although we do not see any signs of returning to anywhere near normal on the horizon and will continue to adapt. For instance, for the first time in more than a decade of running an investor conference physically in Saudi Arabia, we ran it fully virtually this year. We matched corporate clients with global investors, which took place at the end of March 2021. In the last year, the standout activities out of everything we did was debt financing and the retail equity market which was literally 'on fire'. People globally had been locked-in during the pandemic, and with nowhere to spend, they put their savings into the retail markets. The same happened in Saudi Arabia as well. On debt financing, large corporations and governments wanted to beef up their liquidity buffers ahead of an uncertain period. Apart from these two products, in other products also, we performed extremely well, executing on several equity, M&A, and custody landmarks. After stripping out certain one-offs that happened in 2019, we saw and capitalised on growth in our business. Going forward, we expect growth in all of these products. There will also be other enablers for growth in the future, beyond the next 12-month period. Tadawul is going through a massive change program now, the PTTP (post-trade transformation program), the largest upgrade to its system, and aligning more with international markets, as well as supporting more product depth and diversity. When that kicks in in the latter half of the year, there will be growth in products, and we are extremely well-placed between the brokerage and custody products to capture that, notwithstanding the increase in competition. In investment banking, given our scale and the market position, we are already active in the key sectors that have equity and debt raising needs, whether it is in oil and gas, chemicals, consumers, energy, infrastructure, housing, or real estate. Moving forward, we see new sectors becoming more Vision 2030 thematic. Technology will certainly be one of those, and renewables will be another.