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Thu 9 Nov 2017 02:58 PM

Saudi billionaires said to move funds to escape asset freeze

Sources say the country's wealthiest people are in talks with banks, asset managers and advisers

Saudi billionaires said to move funds to escape asset freeze

Some Saudi billionaires and millionaires are seeking to move assets from the kingdom and the wider Gulf Cooperation Council region as what authorities call a crackdown on corruption intensifies, according to six people with knowledge of the matter.

The country’s wealthiest people are in talks with banks, asset managers and advisers to try to shift cash and other liquid holdings from Saudi Arabia and neighboring states amid concerns that funds could be frozen and more arrests will be made, the people said. They asked not to be identified because the matter is private.

Saudi security forces arrested more than 10 princes as well as dozens of ministers, former officials and businessmen in a surprise weekend purge. The central bank asked lenders in the kingdom to freeze the accounts of dozens of individuals who aren’t under arrest, as well as the assets of those being detained, people familiar with the matter said. The Saudi attorney general said in a statement released Monday that the weekend arrests were only “phase one” of the crackdown.

The arrests have prompted investors from within the region to sell, pushing benchmark stock indexes lower.

The selloff across the GCC has cost stocks $17.6 billion as of Wednesday, dragging the collective market capitalisation for bourses in the region to $900 billion, according to data compiled by Bloomberg. Gulf investors sold a net $92.5 million of Dubai stocks on Tuesday, the most since February.

The shift in assets is “unsurprising given a true corruption cleanup would go much further than the events of the weekend,” said  Emad Mostaque, co-chief investment officer of emerging-markets hedge fund Capricorn Fund Managers. The central bank “has strong systems in place to track flows and excellent relationships with major banks globally so any assets moved offshore could be frozen and returned if from corruption.”

The United Arab Emirates central bank asked financial institutions to provide information on the accounts of 19 Saudi citizens, people familiar with the matter said Thursday. The regulator requested to be informed of any accounts, deposits, investments, financial instruments, credit facilities, safe deposit boxes or financial transfers linked to the people, according to a circular seen by Bloomberg.

The crackdown has reinforced speculation that King Salman is clearing any remaining obstacles to the accession of his son, Prince Mohammed bin Salman, to the throne. It comes at a time when the economy is struggling to cope with the slump in oil prices: Unemployment among Saudis is rising and non-oil gross domestic product is barely expanding.

Saudi Arabia is also in the midst of implementing a transformation plan aimed at weaning the economy off oil. As part of these efforts, the government plans to create the world’s largest sovereign fund and sell hundreds of state assets, including Saudi Arabian Oil Co, as well as stakes in the stock exchange, soccer teams and flour mills.

The short term impact of the crackdown is “uncertainty,” said Allison Wood, Middle East and North Africa analyst at the Control Risks strategy firm, which advises companies on investments, on Wednesday. “Whether there will be a positive long term impact, I think that would depend on if he is able to establish the rules for the new business environment in Saudi Arabia."

Prince Mohammed has consolidated his grip on power since his father took the throne in 2015, and now controls defense, oil and economic policies. King Salman this week also dismissed Prince Miteb bin Abdullah from his post as head of the powerful National Guard, taking out one of the last princes who had survived a series of cabinet reshuffles promoting allies of the crown prince.

Concerns of a renewed confrontation between Saudi Arabia and Iran is also prompting investors to dump stocks in the region. Lebanese Prime Minister Saad Hariri resigned on Saturday, announcing his decision from Saudi Arabia and blaming Iran and the Hezbollah militants it backs for the his decision.

The biggest decliner among major GCC gauges so far this week is Kuwait’s SE Price Index, which lost 6.1 percent as of 11:40am in Kuwait on Thursday, followed by Dubai’s DFM General Index’s 5.1 percent loss. All measures in the region are down for the week with the exception of Oman’s MSM30 Index, which rose 0.1 percent.

“A lot of GCC money is already sitting outside the GCC region, especially in Paris, Geneva, Zurich and Asia,” said Sergey Dergachev, who helps oversee about $14 billion in assets as a senior money manager at Union Investment Privatfonds in Frankfurt. “Those centres should remain beneficiaries if more money moves out.”

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