The government of Kuwait has successfully priced its $8bn bond, its first foray into international debt markets, as the Gulf state looks to bridge its fiscal deficit and increase the pace of economic growth.
Kuwait raised $3.5bn from a five-year tranche due in 2022 and $4.5bn from notes due in 2027. The five-year paper yields 2.887 per cent, while the longer term tranche offers 3.617 per cent, with the final spread coming at 75 basis points over the US treasuries on the shorter term paper and 100bps for the 10-year bonds, according to a Kuwait Finance Ministry statement.
The spreads compare with guidance of above 85bps and 110bps area, respectively. The initial price expectations were 100bps-plus and 120bps-plus respectively.
The sovereign offering received strong interest from investors and the order book reached $29bn from 778 orders with demand from both international and regional accounts.
The final geographic allocation for the five-year bonds was 4 per cent to Asian investors, 46 per cent to European and the UK investors, 24 per cent to investors from the Americas while 26 per cent of paper was sold to investors from the Middle East and North Africa (Mena). The larger tranche was 4 per cent allocated to Asian fixed income investor, 19 per cent to European and the UK investors, 51 per cent to investors from the Americas and 26 per cent to Mena-based institutions.
Banks, private banks, asset managers, agencies including pensions and insurance funds made up the bulk of investors type for Kuwait offering.
Kuwait is the latest of the GCC states to tap the debt market. The finances of Gulf states have suffered since the crude prices dropped from mid-2014 peak of $115 a barrel to current $52 a barrel level. Saudi Arabia, Qatar, Oman, Bahrain and Abu Dhabi have already turned to international debt markets to shore up their finances.
Saudi Arabia, set the emerging market bond record last year when it managed to raise more than $17bn from its first offering to international investors.
Kuwait expects a budget deficit of KD7.9bn ($26bn) in financial year 2017-18, which is lower than KD9.7bn in 2016-17, its deputy Prime Minister Anas al-Saleh said in January.
Kuwaiti officials in July had indicated that they could could raise as much as $10bn from their international bond sale, however, people familiar with the Kuwaits plans said before the road show that the government was likely to conservatively revise the offering down.
Kuwait conducted the roadshow between 5 to 12 March, covering two continents and four cities including London, New York, Boston and Los Angeles. The Kuwait delegation was led by Anas al-Saleh, Deputy Prime Minister, who is also the Minister of Finance of the country.
The US Citigroup and JPMorgan and UKs HSBC and acted as global coordinators for the transaction, and Citigroup, Germanys Deutsche Bank, HSBC, JPMorgan, local NBK Capital and the UKs Standard Chartered Bank were the joint lead managers and joint bookrunners on the deal.