Riyadh to launch debut bond sale on 19 October

18 October 2016

The kingdom could raise as much as $15bn from the sale of securities as it seeks to bridge fiscal deficit

Saudi Arabia is expected to launch sale of its first ever international bond on 19 October, as the kingdom turns to debt markets to help it bridge a widening fiscal deficit on the back of two-year slump in oil prices.

Saudi representatives are due to conclude the investor roadshow today for the dollar-denominated bond, after which they will release initial price guidance, London-based Financial Times has reported, citing bankers associated with the deal. 

The kingdom is targeting to raise between $10bn and $15bn, which makes it the largest international bond sale in the Middle East. Strong demand is expected for the Saudi debut bond, which comes amid heavy buying of other emerging market debt, according to bankers.

Bonds are likely to be split into five, 10 and 30-year tranches, and are likely to be priced anywhere between 160 and 200 basis points over US Treasuries.

Saudi Arabia, the largest global oil exporter, relies heavily on sale of crude to fuel its economy and meet expenses. Revenues from crude accounted for 80 per cent of the government income last year. Oil prices have fallen more than 50 per cent from the mid-2014 peak of $115 a barrel, forcing Riyadh to tap local debt market and raise $10bn through a syndicated loan as it struggles to bridge the fiscal deficit.

The country is now running an austerity campaign and is trying to develop alternative revenue lines in its hydrocarbon dependent economy. The country National transformation Plan (NTP) announced in June this year has stated government’s intentions to increase its debt level and part privatise some of the state assets including Saudi Aramco’s share sale to public, which is billed to be the largest IPO in the world.

Between the end of December 2015 and end of August 2016, Saudi Arabia’s debt levels increased from SR142.2bn ($37.9bn) to SR273.8bn ($72.9bn), according to the bond prospectus.

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