Moody's Investors Service assigned A3 long-term issuer ratings to SNB Capital with a stable outlook citing a “high level of support” from its parent Saudi National Bank (SNB), in its first rating of the kingdom's largest asset manager.
The agency also issued a P-2 rating to SNB Capital's commercial paper under the Global Scale Rating, with an overall "stable" outlook.
A P-2 rating is issued to companies which have a strong ability to repay short-term debt obligations.
SNB Capital is the largest asset manager in Saudi Arabia with 253 billion Saudi riyals ($67bn) of assets under management as of 2021, representing a 36 per cent market share.
It also maintains a leading position in brokerage with a 20 per cent market share and is active in the investment banking sector.
“The standalone assessment reflects SNB Capital's leading position in its domestic market, its good revenue diversification, notably across asset management and brokerage, as well as its strong profitability margins,” Moody’s said.
SNB capital largely relies on fee-based revenue, which represented close to 90 per cent of total operating income in 2021.
The company, which is 100 per cent owned by state-backed SNB, is strategically important to its parent and benefits from strong financial and operational linkages, Moody’s said.
In addition to the shared brand name and increasingly shared customer base, SNB Capital's product offering "complements its parent's product offering, creating significant cross-sale opportunities", the rating agency said.
Saudi National Bank is the kingdom’s biggest lender by assets. It was formed last year after the merger of National Commercial Bank with Samba Financial Group.
The bank reported an 11 per cent increase in 2021 profit to 12.7bn riyals amid continued economic recovery. Operating profit jumped more than 32 per cent a year to about 28.5bn riyals, boosted by a 33 per cent surge in net income from special commissions and financing and investment activities.
SNB Capital is looking to grow its principal investments and margin trading business, and hence is looking to launch a short-term financing programme (commercial paper) of 5bn riyals with a five-year maturity.
"Moody's expects short-term borrowings to increase gradually, which will translate into increasing leverage over time, albeit starting from a relatively low basis," it said.
While SNB Capital is looking to increase investment risk on the balance sheet, Moody's expects the company to follow a "conservative asset allocation, with well-defined exposure limits, and to maintain comfortable liquidity levels".
"The stable outlook reflects Moody's expectation that SNB Capital will continue to grow its revenue base, maintaining robust profitability margins," it said.
