RIYADH: After an eight-year interlude, Saudi Arabia’s government bond sales are coming alive. The desert kingdom that’s home to both the world’s second-biggest oil reserves and Islam’s holiest sites plans to auction as much as 20 billion Saudi riyals ($5.3 billion) as part of a programme to raise a maximum of 100 billion riyals by the end of the year, two people familiar with the matter said last week. The government confirmed last month it already sold 15 billion riyals of bonds in a direct sale to private investors.
The country’s renewed appetite for debt comes against a backdrop of deepening involvement in regional conflicts in Yemen and Syria, and a budget deficit that’s poised to widen to the most since 1987. For Mazen Al Sudairi, the programme also underlines the Custodian of the Two Holy Mosques King Salman’s resolve to maintain spending amid a collapse in oil prices, the country’s biggest revenue stream.
“Oil prices have given incentive for the government to issue bonds now,” Al Sudairi, the Riyadh-based head of sell-side research at Alistithmar Capital, a unit of Saudi Investment Bank, said by phone on Sunday. The debt sale “also shows the government’s confidence in its oil and development policies. We have so many infrastructure and energy projects that will need funding,” he said.
Until this year, Saudi Arabia hadn’t issued securities with a maturity of more than 12 months since 2007, according to data. Details of its recent private placement, including the price, the maturity and even the date of the sale haven’t been made public. The government has yet to confirm the plan to raise as much as 100 billion riyals in 2015.
“The country needs the government to issue debt instruments to develop the debt-capital market,” Mohammed Al Jadaan, the chairman of the Riyadh-based Capital Market Authority, said on Sunday by phone. “We need it to create a risk curve that can be used to measure pricing of debt issuances by other companies.”
In June, Saudi Arabia opened its stock market to international investors amid plans to diversify its economy away from oil. The nation’s budget deficit may widen to as much as 20 per cent of gross domestic product, the International Monetary Fund estimates, after crude prices sank about 50 per cent.
“Formation of a government yield curve is a welcome step toward independent monetary policy,” Emad Mostaque, a London-based strategist at emerging-markets consultancy company Ecstrat, said in an e-mail on August 9.
