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Response to $17.5b Saudi bond issue helps kingdom borrow cheaper

|By Arabian Post Staff| Saudi Arabia’s $17.5 billion debut sovereign bond issue had a most successful start, with investor orders reaching $67 billion, according to reports.

The huge response has meant that the oil kingdom is in a position to borrow more cheaply than was originally expected.

According to Financial Times, the order book was also sufficiently large to enable the country to raise the amount it planned to sell from $15 billion and tighten up prices. Investors had expected Saudi Arabia to sell 10-year debt at a 50 basis point premium to Qatar, which carries a higher credit rating.

Instead, the new 10-year bond was sold at a yield of 3.25 per cent, only 30 basis points above Qatar’s. Five-year debt came with a yield of 2.375 per cent, while 30-year bonds were sold at a 4.5 per cent yield, the FT report said. Secondary market reports say bond prices have shot up in early trading.

According to FT, the big interest in the Saudi issue, extending beyond the originally targeted western audience was accelerated by external factors. Saudis had lined up the bond roadshow in London, Boston, New York and Los Angeles, but FT quoted Richard House of Standard Life Investments to say demand was probably accelerated by external factors beyond its control.

Interest rate cuts and central bank bond buying in the west has driven $12 trillion of government bonds to trade at negative yields. As a result, after the hiccup caused by the US rate rise in December and worries about China at the start of this year, money has surged back into emerging markets, the FT report pointed out.