Saudi plans up to $17.5 bn in first bond issue: Bloomberg

By AFP October 19, 2016 20:02

Saudi plans up to $17.5 bn in first bond issue: Bloomberg

RIYADH: Saudi Arabia plans to raise up to $17.5 billion from its first international bond issue, Bloomberg News reported on Wednesday, as analysts expect strong buyer interest.

It would make the Saudi issue the largest ever from an emerging-market nation, said Bloomberg News, which cited two people with knowledge of the offer.

The figure exceeds the $15 billion which an analyst had previously told AFP could be the value of the issue.

Saudi Arabia, the world’s largest oil exporter, projected a budget deficit of $87 billion this year after a fall in oil revenues, which still account for most of its income.

To cover the shortfall, Saudi Arabia is re-orienting its economy by imposing unprecedented subsidy cuts, slowing government projects, and in September it chopped cabinet ministers’ salaries, among other measures.

The kingdom last week began meetings with potential investors ahead of the bond issue.

According to the sources cited by Bloomberg News, the kingdom plans to sell dollar-denominated five-year bonds yielding about 140 basis points above US treasuries with similar maturity.

Saudi Arabia will also issue 10-year notes and 30-year securities at a premium, the report said.

It added the proposed pricing is also higher than neighbour Qatar’s bonds which offer a similar maturity.

Christopher Dembik, global head of macroeconomic research at France’s Saxo Bank, told AFP the kingdom’s offer “is going to arouse strong interest on the part of investors”, and could be four or five times oversubscribed.

He said investors are desperately looking for yield, and the Saudi offer “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.

Helping to fund deficit 

“So that’s the main reason why they’re now borrowing overseas,” he told AFP.

Saudi banks’ loan-to-deposit ratio rose for the fifth consecutive month in August, reaching 90.8 percent, because of faster growth in credit relative to deposits, Riyadh’s Jadwa Investment said in a report this month.

Borrowing abroad also reduces the drain on the kingdom’s foreign reserves, Dennis said.

Official data show those reserves declined to $562 billion in August from $732 billion at the end of 2014.

The reserves remain very large but their rapid drawdown shows a need for diversified funding, Dennis said.

London-based Capital Economics said in a briefing paper that Saudi reserves are now “unlikely to fall much beyond their current level in the coming years” because the bond issue will finance around a third of next year’s budget deficit and almost all of the current account shortfall.

In April the kingdom released its wide-ranging Vision 2030 for diversifying the economy.

At its heart is a plan to float less than five percent of state oil company Saudi Aramco on the stock market.

The proceeds would help form what will become the world’s biggest state investment fund, with around $2 trillion in assets.

With prospects good for the current international bond issue, Dembik foresees Saudi Arabia borrowing $15 billion to $20 billion annually in the market to help finance its economic transformation plan.


By AFP October 19, 2016 20:02
Write a comment

No Comments

No Comments Yet!

Let me tell You a sad story ! There are no comments yet, but You can be first one to comment this article.

Write a comment
View comments

Write a comment

Your e-mail address will not be published.
Required fields are marked*