Saudi Arabia said to start bond sale in bid to plug deficit

Gulf kingdom is raising the funds as Crown Prince Mohammed bin Salman visits France after a three-week tour of the US
Saudi Arabia said to start bond sale in bid to plug deficit
By Bloomberg
Tue 10 Apr 2018 01:51 PM

Saudi Arabia will probably beat Qatar, its neighbour and political rival, to the international debt market with a three-part dollar bond sale as it seeks to fund its budget deficit.

“It is a clever move on part of Saudi Arabia to come before Qatar,” said Hakki Kalsen, a portfolio manager for emerging-market debt at Union Investment Privatfonds in Frankfurt. “They would have had to pay more if they issued after Qatar.”

The kingdom is raising the funds as Crown Prince Mohammed bin Salman visits France after a three-week tour of the US. But it also comes as Qatar, which is being boycotted by the kingdom and other Gulf states, meets investors in the US and UK ahead of a possible bond sale.

A large Saudi deal at generous valuations may reduce appetite for Qatar. The initial price guidance for the securities on offer is about 20 to 40 basis points wider than the nation’s similar-maturity dollar bonds. The yield on Saudi Arabia’s dollar debt due 2028 has risen 60 basis points this year to 4.31 percent on Tuesday, according to prices compiled by Bloomberg.

Saudi Arabia, the world’s biggest oil exporter, set initial price guidance for the 2025 notes at 170 basis points area over Treasuries, 2030 securities in the 200 basis points area and 2049 bonds in the 235 basis points area, according to a term sheet seen by Bloomberg. Global are books open and the deal is today’s business.

The new bonds “do look cheap but I am sure they will tighten from here,” said Zeina Rizk, a director for fixed income asset management at Dubai-based Arqaam Capital. “They will probably do another massive deal of maybe around $9 billion.”

Saudi Arabia has been one of the biggest issuers in emerging markets since a plunge in oil prices prompted the kingdom to sell dollar bonds less than two years ago. It raised $21.5 billion in 2017 and $17.5 billion in 2016, according to data compiled by Bloomberg.

The nation plans to borrow the equivalent of $31 billion this year to bridge an expected budget deficit of $52 billion and fund growth plans after its economy shrank last year. Last month, it increased a $10 billion syndicated loan by $6 billion.

Citigroup, GIB Capital, Goldman Sachs Group, HSBC Holdings and Morgan Stanley are joint global coordinators on the deal. Bank of China, Industrial & Commercial Bank of China, JPMorgan Chase & Co and Mitsubishi UFJ Financial Group are joint leader managers.

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