Saudi Arabia Said to Target First Dollar Bond After Fed Meetingby and
Kingdom said to plan sale of more than $10 billion of bonds
Roadshow for investors said to be expected at end of September
Saudi Arabia is planning to sell its first international bond in early October as the country seeks to plug a budget deficit estimated at about $80 billion this year, according to people with knowledge of the matter.
The government may hold a roadshow for potential investors in the last week of September and sell at least $10 billion of bonds early the following month, the people said, asking not to be identified as the information is private. The timing and size of the deal may change depending on market conditions, they said, with one person saying the kingdom wouldn’t be concerned by a potential U.S. interest rate increase next month.
Citigroup Inc., HSBC Holdings Plc, and JPMorgan Chase & Co. were hired as global coordinators for the sale, people familiar told Bloomberg in June. Proceeds would be used to help fund an economic transformation plan and plug a budget shortfall caused by the slump in oil prices, they said. The gap is estimated at 13 percent of economic output this year, according to the International Monetary Fund.
The kingdom earlier this year hired HSBC banker Fahad Al Saif to start a debt management office responsible for the bond sale. The office is still working on hiring personnel and implementing policies, which could impact the timing, one of the people said. Saudi Arabia also celebrates a week-long religious holiday in September.
Moody’s Investors Service downgraded the kingdom’s debt to A1 in May, the fifth-highest investment grade and two levels below that of both Abu Dhabi and Qatar, saying the slump in oil prices may lead to a “material deterioration” in the nation’s credit profile.
Government debt levels will increase to 30 percent of economic output by 2020 from 7.7 percent, according to targets set out in the transformation plan released in June. The plunge in crude is driving bond sales across the six-nation Gulf Cooperation Council as governments seek to fill fiscal gaps the IMF said could reach $900 billion by 2021.
“This diversifies their sources of revenue and funding, so I think its very clever,” said Bob Michele, chief investment officer and head of global fixed income at JPMorgan Chase & Co., in an interview on Bloomberg TV on Thursday. “Oil is in a sweet spot now at $40-50 a barrel, it’s not down at $30 a barrel where it was a couple of quarters ago, so it’s good timing for them.”
Investors are buying the most amount of protection against a Saudi Arabian debt default in at least five years, according to data compiled by Bloomberg. The net amount of outstanding credit-default swap contracts has climbed to $1.1 billion, according to data from the Depository Trust & Clearing Corp. CDS for the kingdom have quadrupled over the last two years from about 40 basis points to about 160 basis points.
Saudi Arabia’s Ministry of Finance declined to comment.