Saudis Selling Debt on Need-to-Know Basis Keep Analysts in Dark

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Almost a month after Saudi Arabia issued its first debt in eight years, the world still knows next to nothing about the securities.

OPEC’s biggest oil producer and home to Islam’s holiest sites said in July it sold 15 billion riyals ($4 billion) of bonds to domestic banks, yet details of the issuance, including the price, the maturity and even the date of the sale remain elusive.

The silence underscores the challenge the desert kingdom is facing in balancing a desire to open its markets to new investors as falling oil prices pressure government finances, while preserving its historical reticence toward foreign interference. For Anita Yadav, head of fixed-income research at Emirates NBD PJSC, Dubai’s largest bank, the government could have been more transparent.

“The deal would have assisted in improving transparency and development of the local-currency capital market had it been done with a more widespread engagement of industry participants and more visibly to institutional investors,” Yadav said by phone from Dubai.

Mohammed Al-Jadaan, chairman of the Riyadh-based Capital Market Authority, said in May Saudi Arabia plans to boost its debt market before year-end as it diversifies its $752 billion economy away from oil. A month later, the nation allowed foreigners to trade stocks directly for the first time.

More Debt

Before last month’s bond sale, the kingdom hadn’t issued securities with a maturity of more than 12 months since 2007.

The government plans to sell as much as 20 billion riyals of debt on Monday as a part of a wider plan to raise a maximum of 100 billion riyals by the end of 2015, two people familiar with the matter said Thursday. The offering will be split between tenors of five-, seven- and 10-year securities, the people said, declining to be identified because the information is private. The Saudi Arabian Monetary Authority, which is arranging Monday’s sale, didn’t respond to calls from Bloomberg seeking comment.

The nation may even consider selling debt in the international markets, provided oil prices stabilize and government spending continues, John Sfakianakis, the Riyadh-based Middle East director at asset manager Ashmore Group Plc, said in an interview in Dubai. SAMA’s head of public relations declined to comment by telephone on Wednesday and the Finance Ministry didn’t respond to calls and an e-mail requesting comment.

While Saudi Arabia is the biggest Arab economy, its bond market is relatively undeveloped as companies have access to a bank-loan market flush with cash. The kingdom is working on rules that will allow foreigners to invest in local currency bond and sukuk sales for the first time, three people with knowledge of the matter said in September. Foreigners in Saudi Arabia are currently restricted to secondary market trading in local currency bonds and sukuk.

Budget Gap

The government said it issued the notes after Brent crude sank more than 40 percent in the 12 months through the first week of July. The nation’s budget gap may widen to as much as 20 percent of gross domestic product due to plummeting oil prices, the International Monetary Fund estimates. About 90 percent of Saudi Arabia’s revenue comes from oil.

While it appears select banks took part in the kingdom’s debt sale, “we hope that at least banks in the Gulf Cooperation Council will get an opportunity to participate” in the future, Yadav said.