Saudi Arabia raises $4.5bn in first sukuk this year

Government has forecast a budget deficit of 198 billion riyals this year
By Bloomberg
Tue 25 Jul 2017 10:59 AM

Saudi Arabia raised 17 billion riyals ($4.5 billion) from its first local Islamic bond sale this year as the biggest Arab economy seeks funds to bridge a budget deficit amid low oil prices.

The government received investor offers in excess of 51 billion riyals, more than three times the deal size, according to a  statement posted on the Ministry of Finance website. The kingdom sold 12 billion riyals of bonds maturing in 2022, 2.9 billion riyals of seven-year notes and 2.1 billion riyals of 10-year bonds, according to the statement.

The 10-year sukuk was priced at 3.55 percent, the seven-year at 3.25 percent and the five-year securities at 2.95 percent, according to people familiar with the sale who asked not to be identified.

The deal comes as lower oil prices and austerity measures weigh on Saudi Arabia’s economy. The nation has promised deep cuts to crude exports next month, emphasizing its commitment to eliminating a global supply glut even as fellow OPEC members Libya and Nigeria will be able to increase output.

Budget deficit

The government has forecast a budget deficit of 198 billion riyals this year, or 7.7 percent of economic output, although it appears on course to improve on that after reporting a first-quarter fiscal gap of 26.2 billion riyals, government data showed in May. The deficit will be financed by issuing debt and drawing from reserves after it raised 97 billion riyals from the sale of domestic bonds last year.

Gross domestic product contracted in the three months through March for the first time since 2009 -- illustrating the scale of the challenge facing the country’s new heir, Crown Prince Mohammed bin Salman, as he implements his blueprint for a transition away from oil dependency.

The government, which said on Sunday it started a local sukuk program of unlimited size, raised $9 billion from its inaugural sale of international Islamic bonds this year as it seeks to finance its budget deficit.

The kingdom’s three-part Islamic bonds had earlier been marketed to investors at between 2.9 percent and 3 percent for five-year securities, 3.25 percent and 3.35 percent for seven-year notes and 3.55 percent and 3.65 percent for a 10-year issue, people said, who asked not to be identified.

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