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Wed 19 Oct 2016 03:30 PM

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Saudi Arabia could issue record bond of up to $17.5bn

Gulf kingdom could issue the biggest bond deal in emerging markets history

Saudi Arabia could issue record bond of up to $17.5bn

Saudi Arabia could issue the biggest bond deal in emerging markets history with its triple-tranche transaction.

The GCC sovereign has yet to finalise the size after tightening pricing on its offering of five, 10 and 30-year bonds. But it has guided investors to "expect a total deal size of up to $17.5bn."

If that is the final size, it would beat the $16.5bn that Argentina raised earlier this year.

Much will depend on how sticky demand is as Saudi Arabia seeks to potentially tighten pricing further. The deal has generated a total book of about $67bn, not far off the $69bn Argentina got.

But some investors may reduce or pull their orders if they feel final pricing makes the bonds unattractive. Investors have mixed views about the latest levels, which saw pricing tightened by 20bp on the five and 30-year notes and by 15bp on the 10-year tranche.

"It's a bit bigger than expected, but not tightened too much," said one emerging markets fund manager.

Another said: "To me it seems expensive as an EM investor but if you are a large pension fund in Asia then I guess this looks cheap compared to domestic bonds."

"It also looks cheap compared to the likes of Mexico, Chile and Peru," he added.

Guidance on the five-year notes is now 140bp over Treasuries (plus or minus 5bp). The 10-year is at plus 170bp (plus or minus 5bp), and the 30-year at plus 215bp area (plus or minus 5bp).

All three tranches will price within their final ranges.

Fund managers will be comparing the pricing to Qatar. At initial price thoughts, Saudi was offering about a 50bp premium over its higher-rated regional peer.

Qatar (Aa2/AA/AA) has similar-dated bonds, maturing in June 2021, June 2026 and June 2046. Those were trading at G-spreads of 113bp, 134bp and 177bp respectively just after Saudi's book opened on Tuesday, according to Thomson Reuters data.

Saudi's notes are expected to be rated A1 by Moody's and AA- by Fitch.

The bonds are expected to price later today through global coordinators Citigroup, HSBC and JP Morgan.