Bloomberg/Dubai


The biggest quarterly loss in at least 10 years is failing to thwart a record rally in Saudi Electricity Co bonds as investors bet on lasting government support.
Yields on the utility’s sukuk due April 2024 have dropped to 3.15%, the lowest since they were sold, even after the state-owned power supplier posted a fourth-quarter loss of 1.8bn riyals ($479mn). Two of Saudi Electricity’s Shariah-compliant bonds lead gains in the Gulf Co-operation Council this month, extending 2014’s top returns.
The performance reflects confidence that state backing for the Riyadh-based company will be sustained in the face of the lowest oil prices in almost six years. Saudi Arabia, the world’s largest oil exporter, has never issued dollar sukuk, making securities from the 81% state-owned utility a proxy for the sovereign.
“The credit quality of the company will depend on the support from the government, which will continue to remain strong,” Apostolos Bantis, a Dubai-based credit analyst at Commerzbank AG, said by telephone on January 20. “After six months, if the oil price continues sliding and the sovereigns in Saudi and in the region start cutting their budgets, then we may become a bit more cautious.”
Brent slumped by about 15% so far this year. Saudi Arabia may post a budget deficit of 11% of gross domestic product this year, HSBC Holdings said last week.
Saudi Electricity’s quarterly loss was related to contracts to supply the kingdom’s transport system and “high consumption” units, according to a January 19 statement to the stock market.
“A loss beyond forecasts may have an adverse effect on the equity, but I don’t see it having any material impact on the debt,” Ahmed Shehada, head of advisory and institutions at NBAD Securities in Abu Dhabi, said by e-mail on January 20. “It’s a personal favourite, and if the bond sees a dip due to this news specifically, I would consider it an opportunity to build a position.”
The yield on the 2024 notes fell 36 basis points this year, compared with a 26 basis-point drop to 4.1% for Middle East sukuk on average, according to JPMorgan Chase & Co indexes. Saudi Electricity’s Islamic bonds due in 2044 and 2043 are the region’s best performing this year, according to data compiled by Bloomberg.
The utility, which received a 49.4bn-riyal interest-free loan from the government in March to fund electricity projects, has the same AA- rating as the sovereign at Standard & Poor’s, the fourth-highest investment grade.
“It’s such a high-quality name,” Robert Hahm, investment manager at Mashreqbank PSC in Dubai, said by phone on January 20. “It’s quite important from a strategic perspective.”


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