Saudi Electricity’s illiquid bonds unmoved by debt reduction plan
“There are a lot of reforms and structural changes happening. These will take time to assess and deliver value,” Khalid Howladar, head of credit and sukuk advisory at RJ Fleming, told Reuters
DUBAI: Saudi Electricity Company’s bonds due in 2030 were trading at around 2.2% on Wednesday, flat compared to when the kingdom’s electric transmission monopoly said on Monday it had signed a deal with the government to bolster its balance sheet.
Financial sources said the lack of immediate reaction in SEC bonds to the plan to convert 167.92 billion riyals ($45 billion) in state liabilities into a subordinated perpetual financial instrument was because it will take time to materialise and SEC’s bonds are illiquid.
“There are a lot of reforms and structural changes happening. These will take time to assess and deliver value,” Khalid Howladar, head of credit and sukuk advisory at RJ Fleming, told Reuters.
The reforms include a new mechanism to determine SEC’s required revenue, which will be effective from Jan. 1, 2021, and cancelling government fees.
A fund manager said: “The original liabilities were already seen as equity in the market’s assessment of credit.”
The change envisages the “immediate deleveraging” of SEC’s $128 billion balance sheet from a debt-to-equity ratio of 2.2 to a ratio of 0.6, the Saudi Energy Ministry said on Tuesday.
The government “is expected to continue supporting the sector and Saudi Electricity Co. on a more structured and transparent basis,” SEC’s financial adviser HSBC said in the Energy Ministry statement.
“Deleveraging will boost SEC’s standalone credit profile but not necessarily the overall credit profile that likely incorporates government support in the rating and this rating uplift can often be somewhat elastic,” Howladar said.