Saudi Arabia beats Qatar to market with $11 billion bond

Riyadh surprised the market on Tuesday when it announced its plan to complete the transaction within the day

Investors follow movements in the Arab world's largest stock market. Saudi Arabia has led the Middle East’s IPO activity by value and volume in the first quarter of 2018 raising US$ 603.2 million. AbdShow more

Saudi Arabia is set to raise $11 billion with a triple-tranche dollar bond, while Qatar is meeting global investors ahead of its first appearance in the debt markets since the beginning of a diplomatic crisis last year.

The Saudi deal is Riyadh’s fourth international public bond sale.

The kingdom has established itself as one of the top global debt issuers after it began selling international sovereign bonds in 2016 with a $17.5bn debut sale, the largest bond issued across emerging markets.

The proceeds from the bonds are being used to help fill a budget deficit caused by low oil prices.

Saudi Arabia, acting through the ministry of finance, surprised the market earlier on Tuesday when it announced its plan to complete the transaction within the day and without a bond roadshow.

According to several fund managers and bankers, the timing of the Saudi deal could complicate Qatar’s planned bond.

“Issuing now, Qatar will get a lower order book, which will put them in a less competitive place to issue from,” which means Qatar may have to offer generous pricing to attract large demand, said a fund manager.

Saudi Arabia, along with the United Arab Emirates, Bahrain and Egypt, has been locked in a diplomatic dispute with Qatar since June last year, with the former countries accusing Qatar of funding terrorism, an assertion Doha denies.

“Tensions obviously remain between the two states, and I guess there will be some competition herein about pricing and size of any deal,” said Timothy Ash, senior emerging markets sovereign strategist at BlueBay Asset Management.

Saudi Arabia has marketed seven-year, 12-year and 31-year notes. It set the size of the seven-year notes at $4.5bn, and the spreads at 140 basis points over US Treasuries. The size of its planned 12-year notes has been set at $3bn, with spreads at 175 basis points over US Treasuries, while it plans to raise $3.5bn in 31-year notes at 210 basis points over the UST benchmark, a document from one of the banks leading the deal showed.

Combined order books for the debt issue went up to more than $50billion earlier on Tuesday.

Initial price guidance for the seven-year notes was in the 170 basis points area over US Treasuries, for the 12-year notes in the 200 bps area over UST and in the 235 bps area over UST for the 31-year paper.

The initial guidance was generous, fund managers said.

Mohieddine Kronfol, chief investment officer of Global Sukuk and Mena fixed income at Franklin Templeton Investments, said it was 30 to 40 basis points wide of the current yield curve, with the longest leg on offer looking more attractive, followed by the seven-year notes and the 12-year notes.

Citi, GIB Capital, Goldman Sachs International, HSBC and Morgan Stanley have been appointed as global co-ordinators for the issue. Bank of China, Industrial and Commercial Bank of China, JPMorgan Chase & Co and Mitsubishi UFJ Financial Group are working as joint lead managers.