Riyadh to raise $5.3bn from local currency bonds

21 March 2016

Government will sell three-, five- and seven-year bonds offering floating as well as fixed rates

Saudi Arabia’s government will sell SR20bn ($5.3bn) of three, five and seven-year bonds, with floating and fixed rates to local banks.

Allocations of the bonds will be made on 21 March news agency Reuters quoted Maaal financial website as saying. Among the new fixed-rate bonds, the three-year tranche will be priced at 55-60 basis points over US Treasuries, the five-year tranche at 61-66 bps over and the seven-year tranche at 72-77 bps over, sources told Maaal.

The floating rate bonds would be priced at the three-month Saudi interbank offered rate minus 25-30 bps for the three-year tranche, minus 10-15 bps for the five-year tranche, and flat to 5 bps over for the seven-year tranche.

The kingdom, which expects a SR326bn ($87bn) budget deficit in 2016, has embarked on spending cuts to compensate for shrinking oil revenues. The SR444.5bn oil proceeds in 2015, represented 73 per cent of the kingdom’s total revenues. This is 23 per cent less than the income generated from the sale of crude a year earlier. 

The government has resorted to drawing down on the foreign reserves and tapping the Saudi banks and financial institutions with local currency bonds. It has been selling SR20bn bonds every month since August 2015 to meet meet budget shortfalls. Last month, the government sold five, seven and 10-year bonds.

Riyadh has also invited banks to submit proposals to extend it a five-year $6bn-$8bn loan. If the deal goes ahead, it will be kingdom’s first bid to tap international debt market for more than a decade.

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