October 19, 2016 – Saudi Arabia plans to raise up to US$17.5 billion from its first international bond issue, local media reported earlier today. It would make the Saudi issue the largest ever from an emerging-market nation.
The figure exceeds the US$15 billion which an analyst had previously said could be the value of the issue. Experts say it should attract strong buyer interest.
The kingdom, the world’s largest oil exporter, projected a deficit of US$87 billion this year after a fall in oil revenues, which still accounts for most of its income.
To cover the shortfall, Saudi Arabia has imposed unprecedented subsidy cuts, slowed government projects, and in September cut cabinet ministers’ salaries, among other measures.
The kingdom last week began meetings with potential investors ahead of the bond issue.
According to sources, the kingdom plans to sell dollar-denominated five-year bonds yielding about 140 basis points above United States Treasuries with similar maturity.
Saudi Arabia will also issue 10-year notes and 30-year securities at a premium, the report said.
Christopher Dembik, global head of macroeconomic research at France’s Saxo Bank, said the kingdom’s offer “is going to arouse strong interest on the part of investors” desperately looking for yield.
“Although the country can legitimately hope to borrow at an attractive rate, it will be certainly slightly above that of its neighbours because of its less favourable sovereign debt rating and a recent global trend towards higher sovereign rates,” he said.
Saudi Arabia has already issued domestic bonds but that has led to a tightening of bank liquidity, according to Patrick Dennis, lead Middle East economist at Oxford Economics in London. “So that’s the main reason why they’re now borrowing overseas,” he said.
Saudi banks’ loan-to-deposit ratio rose for the fifth consecutive month in August, reaching 90.8 per cent, because of faster growth in credit relative to deposits, Riyadh’s Jadwa Investment said in a report this month.