Saudi Arabia has successfully launched a $12 billion, three-part bond issue, garnering overwhelming demand from investors and receiving over $30 billion in orders. The kingdom strategically sold bonds with tenors of six, 10, and 30 years, amounting to $3.25 billion, $4 billion, and $4.75 billion, respectively. This move is part of Saudi Arabia’s annual borrowing plan for 2024, aiming to address fiscal deficits and meet upcoming financial obligations.
Bond Details and Purpose:
The breakdown of the bond issue includes $3.25 billion for a six-year tenor, $4 billion for a 10-year tenor, and $4.75 billion for a 30-year tenor. The funds raised will be utilized for domestic budgetary purposes as Saudi Arabia continues to implement its ambitious economic transformation plan, known as Vision 2030. This plan seeks to diversify the nation’s economy away from its reliance on hydrocarbons by boosting non-oil GDP and driving domestic growth.
Market Anticipation and Investor Interest:
The bond issuance by Saudi Arabia was highly anticipated in the financial markets, with investors displaying a strong interest. Simon Quijano-Evans, Chief Economist at Gemcorp Capital Management Limited in London, noted that the Gulf state’s higher credit rating compared to other emerging market peers positions it as an attractive opportunity for global funds. The successful bond sale reinforces Saudi Arabia’s status as an appealing destination for international investors.
Price Adjustments and Final Spreads:
The Saudi government experienced narrowing final spreads from the initially provided guidance due to robust investor appetite. The spreads for the six-year bond tightened to 90 basis points over U.S. Treasuries (UST) from 115 bps, while the 10-year bond saw a reduction to 110 bps over UST from 135 bps. Similarly, the 30-year bond’s spreads were adjusted to 170 bps over UST from 195 bps. These adjustments allowed the Saudi government to price the bonds more favorably.
Underwriting Banks and Mandates:
Citi, HSBC, J.P. Morgan Securities, and Standard Chartered Bank were selected as global coordinators and joint bookrunners for the bond issue. Additionally, Bank of China, Mizuho International, SMBC Nikko, and SNB Capital acted as passive bookrunners, contributing to the success of the bond sale.
Saudi Arabia’s $12 billion bond issuance, met with strong demand and strategic tenor differentiations, reflects the country’s commitment to addressing fiscal needs and supporting its economic diversification goals. The successful sale positions Saudi Arabia as an attractive investment destination, with global funds likely to view it as a promising cross-over opportunity. The narrowing of final spreads indicates investor confidence in the economic prospects of the kingdom, reinforcing its status as a key player in the global financial landscape.
