Saudi Arabia Regains Market Confidence as Its EM Bond Attracts Investors

There has been a tremendous interest in Saudi Arabia’s emerging-market bonds of 2018. This demonstrated the country is regaining the confidence of market after a crackdown on corruption leading to the arrests of high profile billionaires and princes in November last year. The stability in the oil price also helped the market to repose its confidence in the middle-east country apart from the promotional activities of Prince Mohammed Bin Salman in France and the United States.

Biggest Dollar Sale

According to a Bloomberg report, Saudi Arabia has raised $11 billion emerging market bond thus beating its neighboring country, Qatar. The key factor is that the Gulf country was able to market the bonds without any road shows. However, it was not the same situation for Qatar as the other Gulf States and the kingdom boycotted the bond issue. As a result, the country is left with no alternative but to talk to the United States and the United Kingdom investors this week to push its proposed offering.

Saudi Arabia has sold bonds through three different tenures and interest rate. The first is $4.5 billion worth of bonds that will become due in 2025. It would offer 140 basis points more than the similar-maturity of the American Treasuries. The second is the issuance of $3 billion of bonds that will mature in 2030 carrying a spread of 1.75 percentage points. The final tranche covered $3.5 billion of bonds maturing in 2049. The last bond will be carrying 2.10 percentage points more than the similar benchmark.

Saudi Arabia’s bond sale generated a lot of interest when it received bids for over $50 billion. This included the interest shown by joint lead managers to the issue. Significantly, the Gulf country is one of the largest issuers of bond in emerging markets after the oil prices plunged. The weak oil prices forced its Kingdom to sell bonds for quite some time. As a result, the country has raised $50 billion since the end of the year 2016. This included the latest bond offering.

The bond issue success would not have been possible but for the visit of Saudi’s Prince Mohammed Bin Salman’s three-week visit to the United States and France. This apart, the stable Brent crude prices also helped to leave the corruption crackdown aside to regain the market confidence.

Bridging Budget Deficit

Reacting to the bond sale success, Allianz Global Investors’ debt manager for emerging market, Shahzad Hasan, disclosed “The resilience in oil is playing an important role in that, and the crown prince’s tour of the western economies was a positive factor as it sent the right message to foreign investors.”

Saudi Arabia is left with no alternative but to borrow funds to bridge the budget deficit. The country intends to borrow about $31 billion for this as the budget deficit is predicted to be $52 billion. The country should also focus on its growth plans following the shrinking of its economy last year. In March, the national has boosted its syndicated loan by $6 billion to $10 billion.

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