Saudi Global Bond Sets Benchmark

Saudi Arabia made a splash with its $17.5 billion debut in the global bond market, which was the largest debt issuance by an emerging economy. The successful sale on October 19 was increased from an originally planned $10 billion, as orders reached $67 billion from yield-starved investors around the world.

Citi, HSBC and J.P. Morgan led the landmark offering, which comprised five-year, 10-year and 30-year portions yielding 135 to 210 basis points above US Treasury bonds of similar maturities. The sale created a benchmark yield curve that will pave the way for future corporate bond issues from large Saudi companies.

“Saudi Arabia’s record-breaking sale of international bonds will finance around a third of next year’s budget deficit and almost all of the current-account shortfall, so the kingdom’s foreign exchange reserves are unlikely to fall much in the coming years,” says Jason Tuvey, Middle East economist at Capital Economics. “Any lingering concerns that the riyal will be devalued are likely to fade.”

The fall in oil prices led the kingdom to resume issuing bonds in the domestic market last year for the first time in a decade. The global issue will diversify Riyadh’s funding sources and relieve tightening liquidity in the Saudi banking system.