Saudi Arabia’s first international bond offering totaled US$17.5 billion and was nearly four times oversubscribed, official media said yesterday, confirming the strong buyer interest which analysts expected.
“The total sum of the first offering was US$17.5 billion,” the Saudi Press Agency reported. “The total subscription requests for these bonds amounted to US$67 billion dollars.”
A source involved in the operation on Wednesday confirmed that “the terms have been launched,” and Saudi has divided the total into three tranches with maturities of five, 10 and 30 years respectively, tailor-made for the US market.
However, investor interest in the issue extends well beyond the US, the source said.
The Saudi issue will be bigger than many analysts had expected.
It is set to be the largest ever from an emerging-market nation, Bloomberg News said.
Saudi Arabia, the world’s largest oil exporter, projected a budget deficit of US$87 billion this year after a fall in oil revenues, which still account for most of its income.
To cover the shortfall, Saudi Arabia is reorienting its economy by imposing unprecedented subsidy cuts and slowing government projects. Last month, it cut Cabinet ministers’ salaries, among other measures.
The kingdom last week began meetings with potential investors ahead of the bond issue.
According to sources cited by Bloomberg News, it is pricing the five-year bonds to yield about 140 basis points more than US Treasuries.
Christopher Dembik, global head of macroeconomic research at France’s Saxo Bank, told reporters on Wednesday that the offer “is going to arouse strong interest on the part of investors” who are desperately looking for yield.
The Saudi offer “will be certainly slightly above that of its neighbors because of its less favorable sovereign debt rating and a recent global trend towards higher sovereign rates,” he said.
Saudi banks’ loan-to-deposit ratio rose for the fifth consecutive month in August, reaching 90.8 percent, because of faster growth in credit relative to deposits, Riyadh’s Jadwa Investment said in a report this month.
Borrowing abroad also reduces the drain on the kingdom’s foreign reserves, as official data showed those reserves declined to US$562 billion in August from US$732 billion at the end of 2014.
London-based Capital Economics said in a briefing paper that Saudi reserves are now “unlikely to fall much beyond their current level in the coming years” because the bond issue will finance about one third of next year’s budget deficit and almost all of the current account shortfall.
In April, the kingdom released its wide-ranging Vision 2030 for diversifying the economy.
At its heart is a plan to float less than 5 percent of state oil company Saudi Arabian Oil Co on the stock market.
The proceeds would help form what will become the world’s biggest state investment fund, with about US$2 trillion in assets.
With prospects good for the current international bond issue, Dembik foresees Saudi Arabia borrowing US$15 billion to US$20 billion annually in the market to help finance its economic transformation plan.
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