Saudi Arabia Set to Raise $8 Billion in Debut Islamic Bond Sale

  • Kingdom to use proceeds to bridge its budget shortfall
  • Debut Islamic offering got orders of more than $33 billion

Saudi Arabia plans to raise about $8 billion in its first dollar-denominated Islamic bond sale, people familiar with the matter said, less than six months after the kingdom sold $17.5 billion of conventional bonds.

The government is selling the five-year sukuk tranche at 100 basis points over the mid-swap rate and the 10-year tranche at a spread of 140 basis points to the benchmark, the people said, asking not to be identified because the information is private. Investors submitted more than $33 billion in bids, which were evenly split between the two offerings, the people said.

Saudi Arabia is tapping international and domestic markets to help finance a budget deficit that may reach $53 billion this year. The kingdom raised $17.5 billion in October in the biggest ever bond sale from an emerging-market nation, underlining the deepening strain on a nation that has eschewed international debt markets until now. Saudi Arabian Oil Co., the world’s largest oil producer, sold $3 billion of Islamic bonds for the first time last week.

“And they continue to blaze a trail,” said Angelo Rossetto, a trader at GMSA Investments Ltd. in London. This “should be the largest and most liquid sukuk, despite the holidays in Europe, and should perform well once we are back in full flow.”

Aramco IPO

The country has been hit by a drop in energy prices, prompting it to cut spending, raise debt and prepare what may be the world’s largest initial public offering of Aramco, as the oil company is known, to help manage the shortfall.

Citigroup Inc., HSBC Holdings Plc and JPMorgan Chase & Co. are joint global coordinators for the sukuk, while BNP Paribas SA, Deutsche Bank AG and NCB Capital are helping to manage the sale.

Moody’s Investors Service assigned a provisional rating of A1 to the sukuk, while Fitch Ratings gave it A+.

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