Saudi bond roadshow to start this week

11 October 2016

Kingdom plans to raise at least $10bn from international debt markets to help support its economy

Riyadh is planning to start fixed-income investors’ meetings this week, as the kingdom looks to raise capital from international markets to help it plug a budget deficit and kick-start economic activity.

The kingdom plans to sell at least $10bn in bonds maturing in five, 10 and 30 years, according to news agency Bloomberg, which cited a bond prospectus of the bond deal it has obtained. Riyadh plans to start meetings in London, Los Angeles, Boston and New York starting on 12 October to attract international investors, it added.

Saudi Arabia, the biggest oil exporter, sees its crude reserves of 266.5 billion barrels lasting 70 more years and it has not sought an independent consultant to review the figures, the prospectus says, adding that crude sales have accounted for about 75 per cent of total export earnings for the country.

The kingdom was forced to cut spending, cap awards of new development schemes and withhold payments owed to firms in the construction sector after oil prices fell from a mid-2014 peak of $115 a barrel. Riyadh borrowed heavily from the domestic debt market and, in a bid to cut its dependence on crude revenues, launched the National Transformation Programme (NTP) in June.

The state has cut the salaries of ministers by 20 per cent and has curbed the perks of state employees as it seeks to control its public wage bill, one of the main aims of the NTP. The development of local industries and part-privatisation of some of the state assets, including a less than 5 per cent share sale of Saudi Aramco, the world’s biggest oil exporter, are part of the government’s efforts to develop alternative revenue lines.

US-based Moody’s Investors Service cut Saudi Arabia’s credit rating to A1 in May, the fifth-highest investment grade, saying “lower oil prices have led to a material deterioration in” creditworthiness. That is seven steps above neighboring Bahrain, which sold $2bn of bonds due in seven and 12 years last week, paying as much as 7 per cent.

The US’ Fitch Ratings has assigned the upcoming dollar-denominated senior unsecured medium-term notes an expected rating of ‘AA-(EXP) ’, which is in line with the kingdom’s long-term foreign currency issuer default rating of ‘AA-’ with a negative outlook, the ratings agency said in a statement.

The deal comes just weeks before a US election that threatens to stoke market volatility. The securities will be available to US investors through Rule 144a.

Debt issuance across the six-nation GCC economic bloc rose to a record $47bn this year, including Qatar’s $9bn sale in May, which was the biggest ever in the Middle East. Some governments in the region are on a borrowing spree to fill fiscal gaps, which the Washington-based IMF says could reach $900bn by 2021.

Saudi Arabia, in May, also completed a $10bn loan from a group of US, European, Japanese and Chinese banks. Its direct local debt was $63bn as of the end of August, of which $25.1bn was raised this year, according to the Saudi bond prospectus.

The kingdom has hired the US’ Citigroup and JPMorgan Chase, and the UK’s HSBC Holdings as global coordinators, and has added seven other managers from Japan and China to Germany and France, according to the news report.

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