Friday, February 26, 2021

Saudi Arabia Returns to Dollar Debt Market to Boost Finances

(Bloomberg) — Saudi Arabia started the sale of a two-part dollar bond as countries in the Gulf Arab region raise cash buffers to weather low oil prices and the coronavirus pandemic.

The world’s largest crude exporter plans to price benchmark-sized bonds on Tuesday, according to a person familiar with the matter, who asked not to be named. Benchmark typically means the equivalent of at least $500 million.

  • The initial price talk for the 12-year note is about 165 basis points over 10-year U.S. Treasuries, according to the person familiar
  • It set the initial yield for the 40-year security at 3.75%
    • The yield on its debt due 2060 was at 3.5% at 9:29 a.m. in London

Saudi Arabia joins Oman and Bahrain in tapping international capital markets this month, with the price of Brent crude still below what most of the region’s economies need to balance their budgets. The kingdom’s dollar bonds have lost 1% since the start of year, making them the worst performer among Gulf Arab peers.

“Coming into January, the entire Saudi curve has underperformed regional and EM peers in anticipation of today’s announcement,” said Angad Rajpal, head of fixed income at Emirates NBD Asset Management in Dubai. “It is a well-liked credit story underpinned by prudent response on public finances with a strong reform momentum.”

Crown Prince Mohammed Bin Salman is seeking to get his economic master plan, known as Vision 2030, back on track following the fallout from the Covid-19 outbreak and lower oil prices. The program includes boosting non-oil income and making the kingdom more attractive to foreign talent and investment.

Still, economists have said that such austerity measures as spending cuts and a tripling of value-added tax will continue to weigh on growth.

Saudi Arabia surprised investors by staying away from foreign capital markets in the second half of last year, opting to cover almost all of its budget deficit via domestic borrowing. The kingdom’s total outstanding debt stands at almost $228 billion. The books are expected to close at the end of Tuesday.

Goldman Sachs, HSBC Holdings Plc and JPMorgan Chase & Co. are the global coordinators and BNP Paribas SA, Citigroup Inc., Standard Chartered Plc and NCB Capital are the passive joint lead managers.

(Updates with comment by Emirates NBD Asset in fourth paragraph.)

©2021 Bloomberg L.P.

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