Saudi Leads Emerging-Market Issuers With $11 Billion Bond

(Bloomberg) -- Saudi Arabia beat estranged neighbor Qatar to the bond market, raising $11 billion in the biggest dollar sale by an emerging-market nation this year.

The kingdom moved quickly to sell the bonds without a roadshow, forcing Qatar, which is being boycotted by Saudi Arabia and other Gulf states, to play catch-up. The smaller nation is meeting investors in the U.S. and U.K. this week ahead of a possible offering and will hope to get a deal away despite its isolation.

“There was likely some strategic thinking in the timing of Saudi Arabia coming ahead of Qatar,” said Tim Ash, a senior emerging-market strategist at BlueBay Asset Management in London. “Qatar might have to price accordingly to draw investors. They also want to demonstrate continued market access, after its spat with Saudi and other Gulf states.”

Here’s a breakdown of what Saudi Arabia sold:

  • $4.5 billion-worth of bonds due in 2025 at 140 basis points over similar-maturity U.S. Treasuries
  • $3 billion of notes maturing in 2030 at a spread of 175 basis points
  • $3.5 billion of 2049 bonds at 210 basis points over the benchmark

Saudi Arabia’s sale, which eclipsed Argentina’s $9 billion offering in January, received more than $50 billion in bids, including interest from joint lead managers, three people familiar with the deal said, declining to be identified because the information is private.

Saudi Arabia reduced the spread it was offering and still managed to sell the bonds, said Richard Segal, a senior analyst in London at Manulife Asset Management, which oversees $400 billion. “This still left a good deal of value on the table for investors,” he said.

The Saudi deal shouldn’t impact the pricing on Qatar’s upcoming bond, Segal said. Qatar’s neighbors accuse the state of supporting terrorism -- a charge it denies.

Saudi Arabia has been one of the biggest issuers in emerging markets since a drop in oil prices prompted the kingdom to sell dollar bonds less than two years ago. With this week’s offering, Saudi Arabia has raised a total of $50 billion since the end of 2016, according to data compiled by Bloomberg.

The kingdom plans to borrow the equivalent of $31 billion in 2018 to bridge an expected budget deficit of $52 billion and to fund growth plans after its economy shrank last year. Last month, it increased a $10 billion syndicated loan by $6 billion.

Confidence Boost

Citigroup Inc., GIB Capital, Goldman Sachs Group Inc., HSBC Holdings Plc and Morgan Stanley were joint global coordinators on the Saudi deal. Bank of China, Industrial & Commercial Bank of China Ltd., JPMorgan Chase & Co. and Mitsubishi UFJ Financial Group were joint lead managers.

The sale was completed as Crown Prince Mohammed bin Salman visited officials in France after a three-week tour of the U.S. to drum up business. His visit, and higher Brent crude prices of around $70 a barrel, have helped investors move on from the shock of a corruption crackdown that led to the arrest of high-profile princes and billionaires in November.

“The corruption probe is more of a talking point than a fundamental factor for fixed income," and the market has been impressed by Saudi’s Arabia’s political, fiscal and societal reforms, Segal said.

©2018 Bloomberg L.P.