$17.5 billion Saudi Arabia bond sale breaks emerging market record

Saudi Arabia broke emerging market records with a US$17.5 billion bond sale that marks a turning point in the kingdom’s economic history.

The record issuance is expected to pave the way for more debt sales from regional oil exporters as they seek to plug budget deficits created by a weaker oil price.

The sale drew strong interest from global investors seeking more attractive yields amid low interest rates in developed markets.

That interest was demonstrated by the estimated $67bn in orders that the sale attracted, the Wall Street Journal reported, citing a person familiar with the issuance.

Saudi Arabia’s record bond sale is a key part of a massive economic reform programme aimed at weaning the region’s largest economy off its dependence on oil, slashing subsidies and putting thousands of young unemployed Saudis to work.

The sale could finance about a third of next year’s budget deficit and stabilise foreign exchange reserves.

“This should dampen any lingering concerns that the Riyal will be devalued,” said Jason Tuvey, Middle East economist at London-based Capital Economics.

The sale will propel the kingdom’s debt burden to almost a fifth of GDP by the end of the year from less than two per cent in 2014.

Despite the sharp increase analysts say an expected oil price recovery could soften the blow.

“If we’re right in expecting oil prices to edge up over the coming years then most of the spending cuts needed to rein in the deficit and stabilise the debt ratio have already happened,” added Mr Tuvey.

The debt sale was split into three tranches of five, 10 and 30-year-old tranches.

They yielded 2.63 per cent, 3.44 per cent and 4.64 per cent respectively.


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Sean Cronin

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