Instruments to finance the mortgage in Saudi Arabia

Saudi refinance company plans to issue instrument to finance mortgages.

(Reuters) - The state-owned company plans to start issuing instrument in the coming months to finance its plan to expand the mortgage market in the kingdom, the chief executive said on Monday.

Founded in 2017 by the Public Investment Fund, the company is the largest sovereign wealth fund in the Kingdom, funded by the Fund and short-term transactions with banks.

Fabrice Sousini said in an interview that the company would now start offering instrument to raise funds, initially Saudi riyals, but eventually foreign exchange to attract foreign investors.

The first issues will be private offerings, but the company aims to launch the first instrument IPO in late September or early October and at least 300 to 500 million riyals ($ 80- $ 133 million).

The company is part of a government-backed effort to solve one of the kingdom's biggest social and economic problems - the shortage of homes for middle- and low-income families - through the development of the Saudi housing market, which is small by international standards.

The company is ultimately aiming to refinance 20 percent of Saudi Arabia's primary housing loan market, with authorities hoping to expand it to 500 billion riyals by 2020 and 800 billion riyals by 2028 from 290 billion riyals now.

So far, Saudi refinancing has signed memorandums of understanding to provide banks and housing finance companies with just under 6 billion riyals through acquisitions of portfolios and short-term deals.

Sussini said increasing access to fixed-term long-term housing loans would be an important factor in market development. This month, the company began offering these loans for 15 to 20 years through banks and other financing companies.

So far, banks have generally provided such mortgages only to employees of large companies and other stable income earners. Sussini said that with the company's intervention, these loans would eventually form 50 or 60 percent of the mortgage market, up from a third now.

"We want to create a situation in which access to these loans is not limited, but available to the majority of people."

Another goal of the company, which partly mimics the model of US housing finance companies Fannie Mae and Freddie Mac, is to launch a securitization market in the kingdom by bundling housing loans into mortgage-backed securities that they sell to local or foreign investors.

Sosini, who previously served as global chief of securitization at French bank BNP Paribas, said the technical, legal and other work of the project could take two to three years.