Saudi to raise $17.5bn in record bond sale

Bloomberg

Saudi Arabia plans to raise $17.5 billion in the biggest ever bond sale from an emerging-market nation, according to four people with knowledge of the offering, as it seeks to shore up finances.
The government aims to sell 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, the people said. The kingdom plans to raise $5.5 billion in each of the five and 10-year bonds and $6.5 billion in 30-year debt, after receiving $67 billion in bids, the people said.
The sale will eclipse Argentina’s $16.5 billion offering in April as the largest from a developing nation.
The offering followed a week of presentations to prospective buyers, taking 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.
The proposed pricing offers 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 U.S. Treasuries, 121 basis points on 10-year bonds and 164 basis points on 30-year securities as of 5:25 p.m. in Dubai, according to Bloomberg data.
Saudi Arabia is rated A1 at Moody’s Investors Service, the fifth-highest investment grade.
“I imagine they have enough sovereign wealth fund and cross-over investors sewn up to justify the expensive pricing,” Edwin Gutierrez, the head of emerging-market sovereign debt at Aberdeen Asset Management in London, which oversees more than $400 billion, said before the final price guidance on Wednesday. “I can find cheaper bonds elsewhere.”
The sale marks the latest step in Saudi Arabia’s efforts to open up its economy, largely driven by Deputy Crown Prince Mohammed bin Salman. Among proposals are an initial public offering of Saudi Aramco, the state-run oil giant, and further measures to make the $350 billion Tadawul Stock Exchange more accessible to foreign
investors.
“The program which we have heard in the roadshow over the next five to 10 years is really quite dramatic,” Richard Segal, a senior analyst at Manulife Asset Management in London, said on Wednesday. “They want to really transform the economy because they realize that given how young the population is, they would need to transform away from oil anyway.”