By Tom Arnold, Hadeel Al Sayegh and Saeed Azhar
DUBAI (Reuters) - HSBC is planning to add staff to its Saudi Arabian operations as the kingdom embarks on one of the biggest economic transformations attempted by any country, the bank's regional chief Georges Elhedery told Reuters.
Opportunities for investment banks have increased tremendously due to Vision 2030, the reform program launched by Crown Prince Mohammed bin Salman to diversify the economy and end its reliance on oil exports, Elhedery said in an interview.
Riyadh has ambitious privatization plans, including to raise $100 billion through the listing of five percent of state oil firm Saudi Aramco at home and on one or more overseas markets.
On top of that it is opening up the Saudi stock market - something HSBC estimates could attract up to $20 billion in foreign capital - and encouraging local people to save more.
"The transformation is probably unprecedented in the region and has few historic precedents outside the region for that scale," said Elhedery, who is HSBC's Middle East and North Africa chief executive.
He cited China's economic reforms of recent decades and major changes in Britain under prime minister Margaret Thatcher in the 1980s. "Saudi Vision 2030 fits there among these mega transformation plans," he said.
Competition among the big investment banks to grab deals in the Saudi market is fierce. Citigroup (NYSE:C) obtained a Saudi investment banking license in April and Goldman Sachs (NYSE:GS) has applied to the capital markets regulator for a license to trade equities, sources told Reuters in June. Credit Suisse (SIX:CSGN) intends to apply for a full banking license and JPMorgan (NYSE:JPM) is adding bankers.
HSBC, which already has over 12,000 staff across the Middle East and North Africa, had no plans to go on a mass recruiting exercise. However, the London-listed bank would hire some new staff and relocate some existing employees to the kingdom from outside, Elhedery said. New additions would be incremental, he added, but declined to give a number.
HSBC, the largest international bank in the region, is the number one adviser for mergers and acquisitions and debt deals in Saudi Arabia, and the number five for equity capital markets so far this year, according to the latest Thomson Reuters data.
In April it acted as one of the joint global coordinators for Saudi Arabia's $9 billion dollar-denominated sukuk, while it is also one of three banks advising Saudi Aramco on what could be the largest ever share sale, sources have told Reuters.
Other notable deals include advising the Saudi Stock Exchange on its planned public share sale and sovereign wealth fund Public Investment Fund on a possible purchase of a stake in ACWA Power, a developer and operator of power and water plants.
"FANTASTIC" OPPORTUNITIES
The bank was also expecting to expand its business as a result of the opening of the stock market to foreign investors, a move that would create openings for its research, sales, execution, front office and custody services, said Elhedery.
Qualified foreign institutions were allowed to begin investing directly in Saudi stocks in 2015 and qualification requirements were eased last year.
The Capital Market Authority has also been revising rules to help the Saudi market enter international composite equity indexes, which would bring more foreign money.
"Our economic estimate is that if you have FTSE inclusion, as well as MSCI emerging market inclusion for Saudi Arabia, the cumulative number can be in the range of $15 to $20 billion in inflows," he said.
Another cornerstone of Vision 2030 is encouraging Saudis to increase their savings from 6 percent of total household income now to 10 percent.
Elhedery said the target created "fantastic" opportunities for its Saudi operations, which include a 40 percent stake in Saudi British Bank (SABB), and a 49 percent shareholding in HSBC Saudi Arabia, its investment bank.
"When you increase the savings rate you need to give people products either through equity markets or asset management products or bonds or sukuk products," he said.
The bank's Saudi presence will be further strengthened with a merger between SABB and fellow local lender Alawwal Bank. This will create the kingdom's third biggest bank and could, say analysts, involve HSBC acquiring the 40 percent owned by Royal Bank of Scotland (LON:RBS) in Alawwal.
HSBC has already made staffing changes to help its Saudi business, including the secondment in April of Samer Deghaili, co-head of equity capital markets in the region, to its Saudi subsidiary.
Some banking sources told Reuters that one reason HSBC was able to secure some deals in Saudi Arabia was by offering to accept lower fees for investment banking business.
Elhedery dismissed this idea. "The client gives business to those who deserve it," he said. "The fees in this region in general terms have been lower than fees in the U.S. in the industry. But that ... is just the nature of this market."
(This version of the story has been refiled to add dropped sourcing in 10th paragraph)
(editing by David Stamp)