Saudi Arabia Raises $12.5 Billion From Dollar Bond Offering

Updated on
  • Dollar debt offering is the nation’s second this year
  • Kingdom is using proceeds to bridge budget shortfall

Saudi Arabia Return to Dollar-Bond Market

Saudi Arabia raised $12.5 billion from its second dollar bond sale this year as the kingdom bolsters its finances amid an economic overhaul.

The government sold $3 billion of long five-year notes, $5 billion of the 10-year tranche and $4.5 billion of the 30-year offering, people familiar with the matter said, declining to be identified because the information is private. Investors submitted about $40 billion in bids, they said.

  • Long five-year notes were priced at 110 basis points over U.S. Treasuries
  • 10-year tranche at 145 basis points
  • 30-year bonds at 180 basis points

The world’s biggest oil exporter returned to the dollar-bond market as investment-grade borrowing costs relative to U.S. Treasuries remain historically cheap. The kingdom raised $9 billion from the sale of Islamic bonds in April to help bridge a budget deficit, forecast at 198 billion riyals ($53 billion) this year, or 7.7 percent of economic output. It also raised 37 billion riyals in the past three months from domestic debt sales.

Yields on the nation’s existing bonds rose on Wednesday, with the rate on its dollar securities due 2026 climbing six basis points, the most since July on a closing basis, to 3.47 percent as of 6:33 p.m. in London.

Female Drivers

Saudi Arabia is implementing a transformation plan aimed at weaning the economy off oil. As part of these efforts, the government plans to create the world’s largest sovereign fund and sell hundreds of state assets, including Saudi Arabian Oil Co. as well as stakes in the stock exchange, football clubs and flour mills.

The kingdom on Tuesday said it will allow women to drive cars, the most dramatic move so far in the government’s bid to open up the conservative Saudi society and one that is likely to be welcomed by overseas investors. Last week, its sovereign wealth fund said it’s setting up a $2.7 billion company to invest in entertainment in a country where conservatives oppose music and religious police enforce gender segregation.

Read More: Bond Sale Day Is Great Timing for Saudis to Ramp Up the Charm

“Whatever moves the government takes toward modernization and reform will be welcomed by foreign investors,” Richard Segal, a London-based credit analyst at Manulife Asset Management, said by email. “It will certainly help, but I’d think equity and direct investors would find this more relevant, as it shouldn’t have a significant bearing on credit risk.”

Saudi Arabia is rated A1, the fifth-highest investment grade at Moody’s Investor Services. GIB Capital, Goldman Sachs Group Inc., HSBC Holdings Plc, and JPMorgan Chase & Co. are lead managers on the sale.

— With assistance by Alec McCabe, and Dana El Baltaji

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