Banque Saudi Fransi’s USD AT1 Notes: A Strategic Move to Boost Capital

Banque Saudi Fransi (BSF), one of Saudi Arabia’s leading banks, has launched a U.S. dollar-denominated Additional Tier 1 (AT1) Capital Notes offering under its $3 billion AT1 Programme. The initiative, which aims to bolster the bank’s regulatory capital and support its expansion, comes amid a broader trend of Middle Eastern banks seeking international funding to meet Basel III requirements.

The notes, priced at an initial coupon rate of 6.875%, are structured as perpetual bonds callable after six years and will be listed on the London Stock Exchange. While the exact issue size for this tranche remains undisclosed—subject to market conditions—the programme’s total capacity underscores BSF’s ambition to secure long-term capital.

Key Features and Market Context

• Credit Ratings: BSF’s strong credit profile underpins the offering, with ratings of A1 (stable) by Moody’s, A- (stable) by S&P, and A- (stable) by Fitch. These ratings reflect the bank’s solid capitalization and Saudi Arabia’s robust economic fundamentals.
• Coupon Rate: The 6.875% coupon is competitive within the regional AT1 market. For comparison, , shows that most issuances have ranged between 5.5% and 7.5%, with higher ratings commanding lower rates. BSF’s mid-range coupon balances its need for capital with investor demand.
• Regulatory Compliance: As AT1 instruments, the notes qualify as Tier 1 capital, directly boosting BSF’s capital adequacy ratio. This is critical for a bank expanding in a region where economic growth and regulatory requirements are rising.

Risks and Considerations

• Call Risk: Investors face the possibility of the bank redeeming the notes after six years, potentially forcing reinvestment at lower rates.
• Interest Rate Sensitivity: The perpetual structure makes the notes vulnerable to rising rates, though the call feature provides some mitigation.
• Geopolitical and Macroeconomic Factors: While Saudi Arabia’s economic diversification efforts support BSF’s stability, global energy market fluctuations and regional political dynamics could impact the bank’s performance.

Strategic Implications

The offering aligns with BSF’s growth strategy. With Saudi Arabia’s non-oil GDP expected to grow at 4.5% annually through 2025 (), the bank can deploy its strengthened capital into retail, corporate, and infrastructure lending.

Conclusion: A Balanced Play for Capital and Growth

BSF’s AT1 notes strike a pragmatic balance between cost and flexibility. The 6.875% coupon, while higher than some global peers, is justified by regional risk premiums and the bank’s creditworthiness. With a $3 billion programme, BSF has room to issue multiple tranches, ensuring it can capitalize on favorable market conditions over time.

The move underscores the bank’s confidence in its financial health and the region’s growth trajectory. For investors, these notes offer an opportunity to participate in Saudi Arabia’s economic expansion while benefiting from a bank with a strong regulatory buffer. However, the call risk and interest rate exposure mean these instruments are best suited for long-term, income-focused portfolios.

In a market where AT1 capital remains a cornerstone of banking resilience, BSF’s initiative positions it well to navigate both domestic opportunities and global headwinds.