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23 January 2020

Saudi Arabia issues $5 billion bonds as Gulf tensions ease

The Kingdom’s fixed-income assets have been more resilient than those elsewhere in the Middle East following the escalation of geopolitical tensions in the region

Saudi Arabia last sold Eurobonds in October 2019, when it raised a $2.5 billion Sukuk/Bloomberg

by Bloomberg

Saudi Arabia sold its first Eurobond of the year as tension in the Middle East eased following the US assassination of a top Iranian general.

The Kingdom issued $5 billion of debt, taking advantage of low borrowing costs globally. Saudi Arabia is seeking to plug part of its growing budget deficit by selling about $32 billion of local currency and international debt over the course of the year.

Saudi Arabia issued a $1.25 billion seven-year tranche at 85 basis points over US Treasuries and a yield of 2.54 per cent, a 12-year offering of $1 billion was priced at a spread of 110 basis points and yield of 2.88 per cent and a $2.75 billion 35-year tranche.

Citigroup, Morgan Stanley and Standard Chartered have been appointed as global coordinators and joint lead managers while BNP Paribas, HSBC Holdings, JPMorgan Chase & Co. and NCB Capital are also passive joint lead managers.

Saudi Arabia last sold Eurobonds in October 2019, when it raised a $2.5 billion Sukuk.

In December 2019, Fahad Al-Saif, the Head of Saudi Arabia’s Debt Management Office, said that the country would probably soon return to global debt markets. The Kingdom issued $13.4 billion of euro and dollar bonds last year, more than any other emerging market aside from Turkey.

Saudi Arabia’s budget deficit is set to expand to SAR 187 billion ($50 billion) in 2020. The Kingdom is counting on the private sector to stimulate growth as it cuts spending. The non-oil economy grew at its fastest in about five years in Q4 2019 but plans to cut government expenditure this year could challenge Saudi Arabia’s ability to sustain that pace.

Government spending in 2020 is set to fall about three per cent to SAR 1.02 trillion. The government is hoping a modest drop in spending won’t derail a recovery in non-oil growth, which reached an annual 4.3 per cent Q3 2019.

Mohammed Al-Jadaan, the Finance Minister, said that Saudi Arabia may raise an additional $4 billion in international bonds this year, in line with its original plan, after the Kingdom managed to reduce how much it pays to borrow in its latest debt sell.

RELATED STORIES: Saudi Arabia Gulf tensions Citigroup Morgan Stanley Standard Chartered Sukuk Debt Management Office





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