Sins Forgiven at a Price as Saudi Arabia, Turkey Sell Bonds

(Bloomberg) -- Saudi Arabia and Turkey persuaded global investors to overlook last year’s unsavory headlines as they sought to sell new U.S. dollar-denominated bonds. The secret: juicier yields.

The kingdom kicked off the new year by selling $7.5 billion in dollar debt, while Turkey sold $2 billion of notes. Both priced the bonds at least 20 basis points over existing curves.

The two countries, whose missteps contributed to the first annual loss for emerging-market dollar bonds since 2013, joined the Philippines, which borrowed $1.5 billion this week. That ended a three-month lull in new sales amid growing optimism about a slower path of Federal Reserve tightening and an end to the U.S.-China trade war.

“Saudi is a good credit and in Turkey, if you take a step backward and look at the big picture, there has been more positive news than negative news,” said Michael Bolliger, the Zurich-based head of emerging-market asset allocation at UBS Wealth Management’s chief investment office.

Political Tensions

The Turkish lira was the second-worst performer in emerging markets last year and the nation’s dollar debt posted a 5 percent loss after turmoil that followed U.S. sanctions over the detention of an American pastor and tensions over Syria. Saudi assets were also battered after Jamal Khashoggi, an exile working as a columnist for the Washington Post, was killed at the nation’s consulate in Istanbul in October, triggering outcries from leaders worldwide.

Since then, both countries have taken steps to repair the damage. Turkey raised its benchmark interest rate by 625 basis points and curbed government borrowing. Sentiment on Saudi Arabia improved as oil prices recovered and JPMorgan Chase & Co. said it will include the kingdom’s bonds in its emerging-market indexes. While the Saudi offering was its smallest conventional one yet, it managed to attract $27.5 billion in bids.

Read: Saudi Arabia, Four Other Gulf Nations to Join JPMorgan’s EM Bond Indexes

Saudi Aramco, which postponed its initial public offering last year, is joining the fray with plans for its first international bond sale in the second quarter to finance the acquisition of Saudi Basic Industries Corp. the petrochemical giant known as Sabic.

“It is very good timing with the market decidedly risk-on and investors scrambling for paper,” said Delphine Arrighi, a London-based money manager at Merian Global Investors UK Ltd. “Both countries don’t boast a particularly strong economic outlook, but Turkey is offering some discount and Saudi is benefiting from the index-inclusion bid.”

--With assistance from Netty Ismail.

To contact the reporter on this story: Selcuk Gokoluk in London at sgokoluk@bloomberg.net

To contact the editors responsible for this story: Dana El Baltaji at delbaltaji@bloomberg.net, Srinivasan Sivabalan, Alec D.B. McCabe

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