Saudi Arabia to start debut bond investor meetings on October 12

The kingdom plans to use proceeds from the debt sale to help fund an economic transformation plan

18:00 October 13, 2016
Central Bank

Riyadh: Saudi Arabia, undergoing its biggest economic overhaul in recent history, will start meeting investors this week with a view to selling its first international bond, according to people familiar with the matter.

The kingdom will conduct meetings in London, Los Angeles, Boston and New York from October 12, two people said, asking not to be identified because the information isn’t yet public. The nation may sell benchmark bonds maturing in five, 10 and 30 years, they said. The Saudi Arabian Press Agency confirmed the start of the roadshow in a statement on its website.

The debt sale comes as the kingdom seeks to plug a budget deficit that ballooned to the widest in more than two decades last year after oil, its main source of income, slumped. The plunge in crude is driving bond sales across the six-nation Gulf Cooperation Council as governments seek to fill fiscal gaps the International Monetary Fund says could reach $900 billion by 2021. Saudi Arabia is planning to sell at least $10 billion of bonds, four people with knowledge of the matter said last month.

“The anticipated size of $10 billion to $15 billion certainly puts it in the bracket of largest deals from a GCC issuer,” said Chavan Bhogaita, the head of market insight and strategy at National Bank of Abu Dhabi PJSC. “Despite its size, this deal is unlikely to be a one-off. Given the size of Saudi Arabia’s budget deficit, it’s likely the kingdom will need to come back to the international debt markets again in the next year or so.”

Debt boom

Citigroup Inc, HSBC Holdings Plc and JPMorgan Chase & Co. are joint global coordinators for the deal. Bank of China Ltd, BNP Paribas SA, Deutsche Bank AG, Goldman Sachs Group Inc, Morgan Stanley, Mitsubishi UFJ Financial Group Inc and NCB Capital are also helping to manage the issue.

Regional debt issuance climbed to a record $47 billion this year, according to data compiled by Bloomberg. Qatar raised $9 billion in May, a record for the Middle East and Abu Dhabi sold $5 billion in April.

Saudi Arabia in May completed a $10 billion loan — its first in at least 15 years — from a group of US, European, Japanese and Chinese banks. Direct local government debt was $63 billion as of the end of August, according to a statement posted on the Ministry of Finance’s website on Monday.

The kingdom plans to use proceeds from the debt sale to help fund an economic transformation plan. Under Deputy Crown Prince Mohammed bin Salman, the world’s biggest oil exporter has cut allowances and bonuses of some state employees, delayed payments owed to contractors and started reducing fuel subsidies. The prince also plans to sell a stake in oil giant Saudi Arabian Oil Co., or Aramco, and create the world’s biggest sovereign wealth fund.

“The timing looks good since the US elections are still five weeks away, the oil price is stabilising and risk appetite is good with moderate supply in markets at the moment — normally, a sweet spot to print a deal,” said Sergey Dergachev, a senior money manager at Union Investment Privatfonds GmbH in Frankfurt, which oversees about $13 billion.

US jobs data has spurred speculation the Federal Reserve will raise interest rates this year. A report on Friday showed further growth in the US labour market in September, bolstering the case for the Fed to increase interest rates by the end of December. There’s a 68 per cent chance the US will boost borrowing costs before the end of the year, according to federal funds futures prices.