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* Deutsche ranked 2nd on debt market fees in MEast during2013
* Bank sees companies tapping liquidity in local markets
* Says expects tangible measures on stock mkt opening
By Dinesh Nair and Angus McDowall
RIYADH, Jan 20 (Reuters) - Companies in Saudi Arabia willfavour local debt markets over international bond issues to meettheir financing requirements in 2014 as high liquidity keepsfunding costs down, a top executive at Deutsche Bank said.
Saudi firms have increasingly looked to the local debtmarket in recent years to help diversify their funding sourcesaway from bank loans, with ample liquidity in the domesticmarket often suppressing borrowing costs to levels well belowrates for equivalent dollar-denominated bond sales.
With interest rates on international markets expected torise from historic lows as the U.S. Federal Reserve begins towind down its quantitative easing programme in 2014, theinsulated Saudi market and its low borrowing costs are expectedto remain attractive to the kingdom's issuers.
"There is a lot of liquidity looking for a good home inSaudi Arabia. And importantly the Saudi market has developedcomfort with long-term debt issues in Saudi riyals," Jamalal-Kishi, chief executive officer of Deutsche Securities SaudiArabia, said.
"We expect local debt market activity this year to surpassinternational bond sales by Saudi issuers," he said.
The German lender is one of the more active internationalbanks in the Gulf's largest economy, which is expected to openup its markets to foreign investors.
Deutsche competes with HSBC and J.P. Morgan ChaseInc in arranging and advising companies and state-ownedentities on their capital market needs in the kingdom.
The bank earned $14.4 million in fees from arranging debtissues in the Middle East during 2013, second behind HSBC, whichearned $15.4 million, according to Thomson Reuters.
Construction firm Saudi Binladin Group and dairy producerAlmarai were among the issuers of local currencyIslamic bonds last year, while Deutsche Bank helped SadaraChemical Co, a venture between Saudi Aramco and DowChemical, raise 7.5 billion riyals to fund constructionof its facilities last March.
A number of banks, including Saudi Hollandi Bank and Saudi British Bank, have also sold sukuk in thelocal market to improve their reserves after a period of loangrowth.
"For entities who do not have a lot of outstanding debt,issuing in the local debt market may prove less costly and morestraightforward," Kishi said.
MARKET OPENING
Kishi expects measures will be taken in 2014 to open upSaudi Arabia's stock market to foreign investors.
Saudi Arabia is the Arab world's biggest stock market and,by some measures, the world's last sizeable market that has notopened to international capital flows. Hopes of the marketopening to direct foreign investment has prompted internationalbanks to beef up their presence in the kingdom.
"Saudi needs responsible long-term oriented capital thatwill bring technology and best practice to our industrial andservice sectors," he said.
While the Saudi government has been making technicalpreparations, it has never set a date for opening the market.The capital markets regulator in the kingdom has said that anymarket opening would take place only in a gradual manner.
"Saudi Arabia does not need foreign capital per se but whatwe need is a responsible, enlightened capital that will come inand add qualitatively to the way our market opens," Kishi said.
