Record $17.5 Billion of Sovereign Bonds to be Sold by Saudi Arabia

As Saudi Arabia seeks to shore up finances battered by the slide in oil, the kingdom plans to raise $17.5 billion in the biggest ever bond sale from an emerging-market nation, people with knowledge of the offering were quoted in the media as saying.

The sources reportedly said that compared to similar-maturity U.S. Treasuries, 10-year notes at a spread of about 165 basis points and 30-year securities at 210 basis points, the government aims to sell dollar-denominated bonds due in five years yielding about 135 basis points more. The sources also said that in each of the five and 10-year bonds and $6.5 billion in 30-year debt, the kingdom plans to raise $5.5 billion.

Underlining the deepening strain on a country that has eschewed international debt markets until now, the sale will eclipse Argentina’s $16.5 billion offering in April as the largest from a developing nation. Prompting the government this year to cut subsidies, wages and spending, the country registered a budget shortfall of $97 billion last year, equal to 15 percent of its gross domestic product.

“Boom, they went full-scale,” said Angelo Rossetto, a trader at GMSA Investments Ltd. in London who is bidding for the bonds. He said that they “probably want to take advantage of the window before elections and a possible rate increase. Print a lot now and then see what unfolds.”

Officials emphasized the kingdom’s efforts to diversify the $650 billion economy away from oil during a week of presentations to prospective buyers, taking in London, Los Angeles, Boston and New York for a week. The Saudi delegation avoided discussing crude prices was he concern that plagued attendees such as Gregory Saichin, the chief investment officer for emerging-market bonds at Allianz Global Investors in London.

Compared to similar maturity bonds from neighboring Qatar the proposed pricing offers a premium. In what is the fifth-highest investment grade and two-notches below Qatar, Saudi Arabia is rated A1 at Moody’s Investors Service. Still, the premium isn’t high enough for some investors.

“I imagine they have enough sovereign wealth fund and cross-over investors sewn up to justify the expensive pricing. I can find cheaper bonds elsewhere,” Edwin Gutierrez, the head of emerging-market sovereign debt at Aberdeen Asset Management in London, which oversees more than $400 billion, said before the final price guidance Wednesday.

Largely driven by Deputy Crown Prince Mohammed bin Salman, the sale marks the latest step in Saudi Arabia’s efforts to open up its economy. Measures to make the $350 billion Tadawul Stock Exchange more accessible to foreign investors and an initial public offering of Saudi Aramco, the state-run oil giant are among the proposals.

“The program which we have heard in the roadshow over the next five to 10 years is really quite dramatic,” Richard Segal, a senior analyst at Manulife Asset Management in London, said.

“They want to really transform the economy because they realize that given how young the population is, they would need to transform away from oil anyway. There’s a lot to do and the question is how forcefully can they implement this program,” Segal said.

(Adapted from Bloomberg)

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Categories: Economy & Finance

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