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Sat 5 Nov 2016 11:19 AM

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Saudi Arabia likely to add to $17.5bn bond issuance in 2017

New Merrill Lynch report says Gulf kingdom's record issuance is 'unlikely to be a one-off occurrence'

Saudi Arabia likely to add to $17.5bn bond issuance in 2017

Saudi Arabia’s recent $17.5 billion debt issuance is unlikely to be a one-off occurrence, as further issuances can be expected in 2017, according to a new research note from Bank of America Merrill Lynch.

The US bank's GEMs Macro Monthly report said that as long as external bond issuance acts as a substitute to domestic bond issuance, it should "help to gradually ease domestic liquidity and have a positive knock-on effect on Saudi rates".

This would be particularly the case if the government starts repaying contractors, it added.

Saudi Arabia conducted the largest-ever emerging market bond sale earlier this month, selling $17.5 billion of debt in the government's first international offer while attracting investor orders totalling almost four times that amount.

The sale was also a success for the world's top oil exporter in its efforts to convince investors that it can cope with an era of low crude prices and ultimately reduce its dependence on oil.

Bank of America Merrill Lynch also said that the Saudi US dollar peg will hold during an era of lower oil prices given still sizeable foreign assets and the experience with implementing multi-year fiscal adjustments.

The report said that Saudi Arabia’s macroeconomic performance is likely to have "already peaked" if oil prices stay low for long, adding that it predicts twin deficits, tighter liquidity, weaker real GDP growth and softer non-hydrocarbon sector growth given likely fiscal policy tightening.

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