Saudi Arabia raising $12bn in bond sale

Saudi Arabia is raising US$12.5 billion from its second dollar bond sale this year as the kingdom taps debt markets to bolster its finances amid an economic overhaul.

The government sold $3bn of the long five-year notes at 110 basis points over Treasuries and $5bn of the 10-year tranche at 145 basis points, people familiar with the matter said, declining to be identified. It also raised $4.5bn from the 30-year tranche at 180 basis points. Investors submitted about $40bn in bids, they said.

The world’s biggest oil exporter is returning to the dollar-bond market for the second time this year as investment-grade borrowing costs relative to US Treasuries remain historically cheap. The kingdom raised $9bn from the sale of five and 10-year Islamic bonds in April to help bridge a budget deficit, forecast at 198bn Saudi riyals (Dh193.9bn) this year, or 7.7 per cent of economic output. It also raised 37bn riyals in the past three months from domestic debt sales.

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Saudi Arabia is implementing a transformation plan aimed at weaning the economy off oil. As part of these efforts, the government plans to create the world’s largest sovereign fund and sell hundreds of state assets, including a stake in the oil juggernaut Aramco as well as stakes in the stock exchange, football clubs and flour mills.

Last week, its sovereign wealth fund said it is setting up a $2.7bn company to invest in entertainment in a country where conservatives oppose music and religious police enforce gender segregation.

“Whatever moves the government takes toward modernization and reform will be welcomed by foreign investors,” said Richard Segal, a London-based credit analyst at Manulife Asset Management. “It will certainly help, but I’d think equity and direct investors would find this more relevant, as it shouldn’t have a significant bearing on credit risk.”

Saudi Arabia is rated A1, the fifth-highest investment grade at Moody’s Investor Services. GIB Capital, Goldman Sachs, HSBC and JP Morgan are lead managers on the sale.