Saudi Arabia raises $17.5bn RIYADH: Saudi Arabia raised $17.5 billion in its first international bond offering, HSBC said Thursday, reflecting strong interest as the kingdom seeks to diversify its oil-dependent economy.
The bond issue — the first time Saudi Arabia has turned to international markets for financing — was hailed as historic by investors and according to official media was nearly four times oversubscribed.
“It was the biggest syndicated issue ever by any country,” said Jean-Marc Mercier, co-director of the debt capital markets division at HSBC, which took part in the transaction and confirmed the figure.
The world’s largest oil exporter, Saudi Arabia is seeking financing as it moves to diversify its economy following the global collapse in crude prices.
The kingdom is projecting a budget deficit of $87bn this year after a fall in oil revenues, which still account for most of its income.
It has taken a series of austerity measures, including subsidy cuts and reductions in cabinet ministers’ salaries, and earlier this year announced an ambitious plan to diversify its economy.
A veteran banker in the kingdom told AFP the issue would be considered a major achievement.
“The rate came in at good levels. It’s got to be viewed as a big success for the country,” he said, speaking on condition of anonymity.
Saudi Arabia divided the issue into three tranches with maturities of five, 10 and 30 years, HSBC said.
FUTURE ISSUES EXPECTED: The $5.5bn in five-year bonds carries a coupon that pays annual interest of 2.375 per cent.
A further $5.5bn in 10-year bonds carries a coupon of 3.25pc, and the $6.5bn in 30-year bonds has a coupon of 4.5pc.
The effective annual interest rate is 2.588pc on the five-year bonds, 3.407pc on the 10-year bonds, and 4.623pc on the 30-year bonds.
The official Saudi Press Agency reported that total subscription requests amounted to $67bn, or almost four times the $17.5bn offered.
Saudi Arabia had previously issued domestic bonds but that led to a tightening of bank liquidity, according to Patrick Dennis, lead Middle East economist at Oxford Economics in London.
“That’s the main reason why they’re now borrowing overseas,” he told AFP.
Saudi banks’ loan-to-deposit ratio rose for the fifth consecutive month in August, reaching 90.8pc, because of faster growth in credit relative to deposits, Riyadh’s Jadwa Investment said in a report this month.
While bank stress may be a factor, the veteran banker in Saudi Arabia said an international bond sale fits with the kingdom’s global outreach.
“A lot of international investors don’t like to buy the local currency,” preferring US dollars, he said.