Credit Traders Reduce Bets Against Saudi Arabia as Oil Gains

  • Outstanding credit swaps decline to net $869 million of debt
  • Kingdom is marketing as much as $17.5 billion of bonds

Credit traders cut bets against Saudi Arabia to the least in five months, spurred by a rebound in oil prices.

Outstanding credit-default swaps on the Kingdom have fallen to a net $869 million of debt from a peak of $1.1 billion in August, according to Depository Trust & Clearing Corp. data. They fell by $8 million in the week ended Oct. 14, the ninth straight decline, the data show.

The cost of swaps has also dropped as OPEC’s efforts to pare supply have helped push crude to above $50 a barrel, which may help stabilize budgetary pressures in the world’s biggest oil exporter. The country is also selling as much as $17.5 billion of bonds in a three-part sale, according to a person familiar with the matter, who asked to not be identified as they aren’t authorized to speak publicly.

“We’ve seen people close off their short positions and sell credit protection on Saudi Arabia in recent weeks,” said Mohamed El Jamal, managing director of capital markets at Abu Dhabi-based investment firm Waha Capital PJSC. “It makes sense to do that when oil is recovering, OPEC looks like it will act to reduce supply and the bond issuance is likely to be well received by the market.”

Record Sale

The country is marketing five-year, 10-year and 30-year bonds, according to the person. The deal is set to be a record for an emerging-market nation.

Five-year credit-default swaps on Saudi debt have fallen 25 basis points this month to 142 basis points, according to data compiled by Bloomberg. That’s close to the lowest since December 2015, when it dropped to 132 basis points, the data show.

Saudi Arabia in May completed a $10 billion loan -- its first in at least 15 years -- from a group of U.S., European, Japanese and Chinese banks. Direct local government debt was $63 billion as of the end of August, according to a statement posted on the Ministry of Finance’s website earlier this month.

“Saudi’s credit-default swaps reflect the volatility in the oil market and the impact on Saudi revenues,” said Simon Colvin, a London-based analyst at financial-data provider IHS Markit Ltd. “We’ve seen the spread tighten as oil has stabilized and as early reports indicate the bond sale will be popular with investors.”

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