Saudi issues $5bn of bonds as regional tensions ease

Saudi Arabia sold its first Eurobond of the year on Tuesday as tension in the Middle East eases over the U.S. assassination of a top Iranian general.

The kingdom issued $5bn of debt, taking advantage of low borrowing costs globally. It’s seeking to plug part of its growing budget deficit by selling about $32bn of local currency and international debt over the course of the year.

The country issued a $1.25bn seven-year tranche at 85 basis points over US Treasuries and a yield of 2.54 per cent. A 12-year offering of $1bn was priced at a spread of 110 basis points and yield of 2.88 per cent, while a $2.75bn 35-year tranche, the kingdom’s longest yet, yielded 3.84 per cent.

Saudi Arabia’s fixed-income assets have been more resilient than those elsewhere in the Middle East following Qassem Soleimani’s killing on Jan. 3. While Saudi sovereign spreads spiked that day, they’ve since fallen back to 138 basis points over U.S. Treasures, according to JPMorgan Chase & Co. indexes. Saudi Arabia’s sovereign dollar bonds have gained 0.8 per cent in 2020, the most among the members of the Gulf Cooperation Council.

“While remaining fully cognizant of the serious nature of the geopolitical risks of late, institutional investors are likely to show strong demand for this deal,” Chavan Bhogaita, head of strategy at First Abu Dhabi Bank and who’s based in the emirate, said Tuesday before the final terms were announced. There’s a “wall of cash that investors need to put to work” and Saudi Arabia “ticks all the boxes,” he said.

Citigroup Inc., Morgan Stanley and Standard Chartered Plc led the transaction. BNP Paribas SA, HSBC Holdings Plc, JPMorgan Chase & Co. and NCB Capital also helped sell it.

Saudi Arabia last sold Eurobonds in October, when it raised a $2.5bn sukuk. Fahad Al-Saif, head of the kingdom’s debt management office, had said in December the country would probably soon return to global debt markets. It issued $13.4bn of euro and dollar bonds last year, more than any other emerging market aside from Turkey, according to data compiled by Bloomberg.

“Demand for the longer-maturity bonds is likely to be relatively strong because of the higher yields and appetite from pension funds and insurance companies in Asia,” said Carl Wong, head of fixed income at Avenue Asset Management Ltd. in Hong Kong.