Saudi Arabia issues record £17.5bn of government debt

Saudi Arabia

Saudi Arabia raised $17.5 billion in the biggest ever bond sale from an emerging-market nation as it seeks to shore up finances battered by the slide in oil, reports The Independent.

The government sold dollar-denominated bonds due in five years yielding 135 basis points more than similar-maturity US Treasuries, 10-year notes at a spread of 165 basis points and 30-year securities at 210 basis points, according to person familiar with the matter who is not authorized to speak publicly and asked not to be identified. The kingdom raised $5.5 billion in each of the five- and 10-year bonds and $6.5 billion in 30-year debt. People with knowledge of the offering earlier said investors submitted $67 billion in bids.

The sale eclipsed Argentina’s $16.5 billion offering in April as the largest from a developing nation, underlining the deepening strain on a nation that has eschewed international debt markets until now. The country registered a budget shortfall of $97 billion last year, equal to 15 percent of its gross domestic product, prompting the government this year to cut subsidies, wages and spending.

“Boom, they went full-scale,” said Angelo Rossetto, a trader at GMSA Investments in London who bid for the bonds. They “probably want to take advantage of the window before elections and a possible rate increase. Print a lot now and then see what unfolds,” he said.

The offering followed a week of presentations to prospective buyers, taking place in London, Los Angeles, Boston and New York, at which officials emphasized the kingdom’s efforts to diversify the $650 billion economy away from oil. Attendees such as Gregory Saichin, the chief investment officer for emerging-market bonds at Allianz Global Investors in London, were concerned the Saudi delegation avoided discussing crude prices.

Saudi Arabia’s Minister of Energy and Industry Khalid Al-Falih said many nations are willing to join OPEC in cutting production to secure a continued improvement in oil prices. So far, only Russia has said it’s considering an output freeze or a reduction, while other non-OPEC producers that cooperated with past supply curbs, including Mexico and Norway, said they won’t cut.

The bond pricing offered a premium to similar-maturity bonds from neighboring Qatar. The country’s five-year bonds were trading at a spread of 98 basis points over US Treasuries, 121 basis points on 10-year bonds and 164 basis points on 30-year securities as of 5:25 p.m. Wednesday in Dubai, according to data compiled by Bloomberg.