Saudi Arabia Joins Middle East Bond Binge to Boost Finances

Saudi Arabia is selling a Eurobond as it follows other Middle Eastern states that have tapped the market in recent weeks to bolster their finances in the face of the coronavirus pandemic and plunging energy prices, Bloomberg reported.

The offering marks the second time this year the world’s largest oil exporter has turned to international capital markets, as Crown Prince Mohammed bin Salman pushes ahead with plans to open up the economy and wean it off crude. In December, the government sold a $29 billion stake in energy giant Saudi Aramco through the largest initial public offering in history.

“It doesn’t have a choice but to borrow from the bond market,” said Richard Segal, a senior analyst at Manulife Investment in London. “With oil prices lower and soon production lower, and an economic support package recently in place, the government’s deficit and financing requirements have jumped.”

Investors flocked to the kingdom’s latest deal on Wednesday, placing more than $42 billion of orders by around 1 p.m. in London, according to a person familiar with the matter. Saudi Arabia is offering a three-part dollar bond with maturities of 5.5 years, 10.5 years and 40 years. The final terms will probably be announced later in the day.

Citigroup Inc., Goldman Sachs Group Inc. and HSBC Holdings Plc are managing the sale. It comes after Qatar and Abu Dhabi attracted larger-than-normal demand from global bond investors last week, raising $17 billion between them. Israel issued $5 billion at the beginning of the month.

Saudi Arabia’s economy, the biggest in the region, is coming under strain after Brent crude prices sank around 50% this year to under $30 a barrel. While the kingdom has a low ratio of debt to gross domestic product, it needs an oil price of almost $80 to balance its budget. Its deficit will more than double in 2020 to almost 10% of GDP, according to Moody’s Investors Service.

It also has smaller buffers than when oil prices last crashed in mid-2014, with foreign reserves having declined from roughly $730 billion then to less than $500 billion, Bloomberg noted.

The government plans to raise its debt ceiling from 30% to 50% of economic output and said it could borrow as much as 100 billion riyals ($26.6 billion) this year.

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