Saudi Arabia’s first bond sale to raise $17.5bn

Saudis complete record-breaking bond sale as lower oil prices force economic move

Saudi Arabia’s economy is forecast to slow this year as prices for oil remain low, with the IMF cutting expectations for gross domestic product growth to 1.2%  from 3.5%  in 2015

Saudi Arabia’s economy is forecast to slow this year as prices for oil remain low, with the IMF cutting expectations for gross domestic product growth to 1.2% from 3.5% in 2015

 

Saudi Arabia is set to raise $17.5 billion (€15.9 billion) from the sale of its first ever bond, with the Irish Stock Exchange preparing to list the debt – the largest ever issued by an emerging market state.

Strong investor demand for the keenly-awaited bond sale, as the kingdom grapples with a massive budget deficit amid low oil prices, means the amount to be raised will beat current record holder, Argentina, which sold $16.5 billion of bonds earlier this year.

Saudi Arabia registered a budget shortfall of $97 billion last year, equal to 15 per cent of its gross domestic product, and is forecast to post a further $87 billion deficit this year, prompting the government in recent months to rein in lavish public spending, including the pay of government ministers.

The Irish Times first reported last week that the new bonds are set to be listed on the Irish Stock Exchange, after the Central Bank approved a prospectus for the Saudi Arabian debt programme.

Indications

Saudi Arabia closed the book for its first dollar-denominated bond early on Wednesday, with indications suggesting investors have placed orders of about $67 billion, enabling the kingdom to increase the sum issued from a planned $10 billion to $15 billion sale.

Saudi’s debut issue will comprise three maturities of five, 10 and 30 years, and is expected to price with yields around 2.63 per cent, 3.44 per cent and 4.64 per cent, respectively.

The prices are far lower than initial price guidance, which had suggested Saudi Arabia’s new benchmark 10-year borrowing rate would be 3.6 per cent.

Backdrop

The sale, first mooted almost a year ago, occurs against the backdrop of a slump in oil prices from $115 a barrel in 2014 to as low as $27.88 in January. While prices have since rebounded to almost $53 a barrel, analysts expect them to remain rangebound between $50 and $60 for near term.

The successful bond deal helps prepare the way for the the country to proceed in 2018 with an initial public offering of state-owned oil company Saudi Arabian Oil Co, or Aramco. It is by far the world’s biggest company and could be valued at more than $2 trillion.

Citi, HSBC and JPMorgan are leading the sale of the debt. Bank of China, BNP Paribas, Deutsche Bank, Goldman Sachs, Morgan Stanley, Mitsubishi UFJ, and NCB Capital are also involved with the bond sale.

Investment bank working on the transaction would be hoping their firms will manage to get a slice of the IPO later in the decade, which would be the world’s largest ever such deal.

– (Additional reporting: Bloomberg, Copyright The Financial Times Limited 2016)