That Saudi Monster Bond Is a Real Drive-By
Saudi Arabia's Drive-By Bond Kicks Sand in Qatar's Face
(Bloomberg Gadfly) -- It might be a total coincidence that Saudi Arabia has announced a monster bond issue right in front of Qatar, which is midway through a debt roadshow of its own -- but it's unlikely.
Nothing says "capital market access" like a drive-by deal announced and launched on the same day with no need for investor meetings. Saudi is the regional superpower and clearly wants to emphasize its position.
It and the rest of the Gulf Cooperation Council members have imposed stringent sanctions on Qatar, including a ban on money transfers. So while the kingdom has clear financing needs this year, the sudden timing looks deliberately aggressive. It is notable that the lead manager lineup has no overlap -- investment banks have had to choose their side.
A slight mismatch in maturities isn't enough to quash thoughts that this is muscle flexing of the mega-billion variety -- Saudi is launching Tuesday with seven-, 12- and 31-year maturities. Qatar has chosen five-, 10- and 30-year tranches.
Saudi will launch and price before Qatar gets to the starting post, and the indicated spreads on offer are generous -- 40 basis points more than existing Saudi 30-year debt.
Qatar, which announced Monday and was meant to be this week's business, may choose to delay. Its lead managers will be assessing demand throughout the roadshow. As with the Saudi deal, a juicy new issue premium often wins the day if it wants to avoid the embarrassment of withdrawing.
But the question is how much room there is for both.
As both issues will be of benchmark size, they'll go into the major bond indexes. That means there is likely demand for both countries. But it could well come at a cost to both countries in terms of new issue premium and possibly total size raised.
Due to the political turmoil, Qatar knows it has to offer generous spreads to attract international investors as it is shut off from buyers in gulf countries. Its Middle Eastern neighbor is prepared to put its own cost of funding on the line to hammer home that point.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
Marcus Ashworth is a Bloomberg Gadfly columnist covering European markets. He spent three decades in the banking industry, most recently as chief markets strategist at Haitong Securities in London.
To contact the editor responsible for this story: Jennifer Ryan at jryan13@bloomberg.net.
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