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Saudi Arabia Issues $5 Billion of Bonds as Gulf Tensions Ease

Updated on

Saudi Arabia Issues $5 Billion of Bonds as Gulf Tensions Ease

  • Investors placed $23 billion of orders for the Eurobonds
  • Kingdom’s 35-year tranche was priced with a yield of 3.84%

Saudi Arabia sold its first Eurobond of the year on Tuesday as tension in the Middle East eased over the U.S. assassination of a top Iranian general.

The kingdom issued $5 billion of debt, taking advantage of low borrowing costs globally. It’s seeking to plug part of its growing budget deficit by selling about $32 billion of local currency and international debt over the course of the year. Investors placed more than $23 billion of orders for the debt, the Ministry of Finance said in a statement.

Saudi Arabia sold its first Eurobond of the year as tensions in the Middle East ease. Bloomberg’s Matthew Martin reports on “Bloomberg

Daybreak: Middle East.” (Source: Bloomberg)

The country issued a $1.25 billion seven-year tranche at 85 basis points over U.S. Treasuries and a yield of 2.54%. A 12-year offering of $1 billion was priced at a spread of 110 basis points and yield of 2.88%, while a $2.75 billion 35-year tranche, the kingdom’s longest yet, yielded 3.84%.

Saudi Arabia’s fixed-income assets have been more resilient than those elsewhere in the Middle East following Qassem Soleimani’s killing on Jan. 3. While Saudi sovereign spreads spiked that day, they’ve since fallen back to 138 basis points over U.S. Treasures, according to JPMorgan Chase & Co. indexes. Saudi Arabia’s sovereign dollar bonds have gained 0.8% in 2020, the most among the members of the Gulf Cooperation Council.

The kingdom's spreads have dropped in the past two weeks

“While remaining fully cognizant of the serious nature of the geopolitical risks of late, institutional investors are likely to show strong demand for this deal,” Chavan Bhogaita, head of strategy at First Abu Dhabi Bank and who’s based in the emirate, said Tuesday before the final terms were announced. There’s a “wall of cash that investors need to put to work” and Saudi Arabia “ticks all the boxes,” he said.

Citigroup Inc., Morgan Stanley and Standard Chartered Plc led the transaction. BNP Paribas SA, HSBC Holdings Plc, JPMorgan Chase & Co. and NCB Capital also helped sell the bonds.

Read more: Abu Dhabi Bank, Bahrain Fund Kick Off 2020 Mideast Debt Sales

Saudi Arabia last sold Eurobonds in October, when it raised a $2.5 billion sukuk. Fahad Al-Saif, head of the kingdom’s debt management office, had said in December the country would probably soon return to global debt markets. It issued $13.4 billion of euro and dollar bonds last year, more than any other emerging market aside from Turkey, according to data compiled by Bloomberg.

“Demand for the longer-maturity bonds is likely to be relatively strong because of the higher yields and appetite from pension funds and insurance companies in Asia,” said Carl Wong, head of fixed income at Avenue Asset Management Ltd. in Hong Kong.

— With assistance by Netty Idayu Ismail, Paul Abelsky, Sydney Maki, Claudia Maedler, and Alec McCabe