Saudi Arabia Megabond Said at Risk of 9/11 Legislation Delay

  • Kingdom said to plan the sale of at least $10 billion of bonds
  • Vote to override presidential veto to take place on Wednesday

Saudi Arabia’s first international bond may be delayed by a U.S. vote on legislation that would allow the families of 9/11 victims to sue the Arab country, people with knowledge of the matter said.

A Senate vote to override President Barack Obama’s veto of the legislation on Wednesday could cause some investors to balk at the issue, two of the people said, asking not to be identified as the matter is private. The country is planning to sell at least $10 billion of bonds next month, four people said.

Senate leaders in both parties said Tuesday they expect the vote to succeed, though Congress has yet to override a veto by Obama. Senator Ben Cardin of Maryland, the ranking Democrat on the Foreign Relations Committee, said last week that the Saudi government has warned that enacting the bill would cause a “significant change” in the U.S.-Saudi relationship. Saudi stocks tumbled and the currency weakened the most in four months.

The kingdom plans to use proceeds from the international bond sale to help fund an economic transformation plan and plug a budget shortfall caused by the slump in oil prices. Under Deputy Crown Prince Mohammed bin Salman, the world’s biggest oil exporter has taken steps to rein in a budget shortfall that ballooned to 16 percent of gross domestic product last year, the highest among the world’s biggest 20 economies.

Tapping Market

Overriding the bill “could dent investor demand in near term,” said Kaan Nazli, who helps oversee $4.8 billion of emerging-market debt at Neuberger Berman Europe Ltd. in The Hague. “It would subject the new bonds to some headline noise but ultimately the U.S.-Saudi relationship is very deep and the thinking would be that this issue would be overcome somehow.”

The Saudi Arabian riyal weakened the most since May and one-year forward contracts for the currency headed for the biggest increase since July on Wednesday. Saudi stocks lost the most in the world for a second straight day. The Tadawul All Share Index was the worst performer among more than 90 gauges tracked by Bloomberg, falling 4.5 percent as of 2:11 p.m. in Riyadh to the lowest level in more than eight months.

Saudi Arabian officials haven’t made a decision yet on the timing of the bond and amount they plan to raise, Finance Minister Ibrahim Al-Assaf said in a statement to Bloomberg.

Banks managing the sale will watch any market reaction before making a decision and no contingency plans are in place in case of an override vote, another person said.

Saudi Citizens

Fifteen of the 19 hijackers who perpetrated the Sept. 11 attacks were Saudi citizens. Long-classified portions of a congressional inquiry into the attacks that were released in July found that the hijackers may have had assistance from Saudis connected to their government. The Saudi government has denied culpability and the country, a key U.S. ally in the Middle East, has worked behind the scenes to fight the legislation.

Officials in the kingdom told U.S. lawmakers and others in government that enactment of the law could lead them to sell off the kingdom’s U.S. Treasury debt and other American assets, which total $750 billion, according to the New York Times. The Saudi government held $117 billion in U.S. Treasury debt in March, according to figures obtained by Bloomberg. The kingdom may have additional holdings not included in the data on deposit with the New York Federal Reserve Bank, in entities in third countries, or through positions in derivatives.

“It is simply a matter of when, not if, Saudi Arabia decides to tap the international debt capital markets," said Chavan Bhogaita, head of market insight and strategy at National Bank of Abu Dhabi PJSC. “This doesn’t change the fact that Saudi Arabia needs to raise a substantial amount of cash through the bond markets.”

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