Saudi Arabia to meet with investors on potential bond issue

Saudi Arabia’s officials are meeting investors this week to gauge appetite for the country’s first international bond, a potential multibillion-dollar issue aimed at strengthening the kingdom’s finances strained by low oil prices.

The first meeting takes place in London on Wednesday and concludes next week in Boston and New York, according to bankers involved in the roadshow.

Citi, HSBC and J.P. Morgan are the joint global coordinators for the potential offering, which is expected to exceed $10 billion in size, bankers say, and possibly rival Argentina’s $16.5 billion debt sale earlier this year as the largest ever such issuance in emerging markets.

The money raised from the planned bond sale will help shore up the Saudi government’s coffers, which have been depleted as a result of the plunge in oil prices. The kingdom has traditionally generated the bulk of its income from exporting oil but with energy prices down by more than half since mid-2014, the Persian Gulf country is reining in spending to plug a budget deficit that reached a record $98 billion last year.

Saudi Arabia’s Ministry of Finance on Monday said it has enlisted international and domestic banks to help arrange a series of meetings with potential investors. The kingdom will decide on the timing of the bond sale depending on market conditions, the ministry said.

The Saudi delegation includes some of the country’s top finance officials, such as Minister of State Mohammed Al Alsheikh and the head of the country’s recently set up debt management office, Fahad al Saif.

After the meetings, Saudi Arabia is expected to issue an unsecured, dollar-denominated bond with five-, 10 and 30-year maturities, according to the banks.

“Given the deal has been expected for a number of months and should attract interest from investors across the global credit spectrum, appetite should be very significant,” said Liam Spillane, a portfolio manager at Aviva Investors.

“With the announcement of the roadshow today the issuer is looking to take advantage of the window to issue debt before the U.S. elections and potential Fed rate rise in December,” Mr. Spillane said.

Saudi Arabia, which is the Arab World’s biggest economy, is introducing far-reaching economic reforms to reduce the country’s historic reliance on oil, including potentially listing part of state-owned oil giant Aramco and pushing government employees into the private sector. The country’s deputy crown prince, Mohammed bin Salman, is leading those efforts to overhaul an economy that has seen inflation rise and economic growth slow down.

The country has also been burning through its foreign reserves to keep its economy ticking, while it is mired in a costly war in Yemen. In addition, Saudi Arabia has seen rare bouts of labor unrest as major construction firms are laying off tens of thousands of workers.

More recently, political ties with the U.S. have come under strain after U.S. lawmakers decided to allow victims of Sept. 11, 2001 attacks to sue sovereign nations including Saudi Arabia.

The kingdom earlier this year already secured a $10 billion loan from international lenders.

Bankers expect that appetite for Saudi bonds will be high given the demand seen for issuances from some of its Persian Gulf neighbors.

Other Gulf nations, who broadly face some of the same oil-related problems, have preceded Saudi Arabia in selling international bonds. Bahrain, Qatar and Oman have all sold bonds this year. J.P. Morgan earlier said it expects total issuance from the Gulf countries to total $35 billion this year, more than double the previous high in 2009.

Bank of China, BNP Paribas, Deutsche Bank, Goldman Sachs, Morgan Stanley, MUFG and NCB Capital are also mandated as joint lead managers and joint bookrunners on the Saudi bond sale.

Source: National News Agency

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