Saudi Arabia to test bond markets in first sale since Khashoggi murder

[DUBAI] Saudi Arabia is tapping international capital markets for the first time since the murder of Jamal Khashoggi rattled foreign investors.

The kingdom, the biggest issuer of dollar bonds among developing nations over the past two years, will probably sell two benchmark-sized issues due 2029 and 2050, which will likely have a yield premium to similar-maturity debt. The offering is today's business.

The kingdom is targeting a spread of about 200 basis points over Treasuries for debt maturing in April 2029, and around 250 basis points for securities due in January 2050, said a person familiar with the matter, who isn't authorized to speak publicly and asked not to be identified

The spread on Saudi Arabia's bond due in April 2028 was around 150 basis points over Treasuries of similar maturity. It was about 210 basis points for debt due April 2049

"The Saudis have opened the GCC primary markets for the year with a slight bang," said Richard Segal, senior analyst at Manulife Asset Management in London. "The initial guidance is quite wide, that is 40 basis points over the outstanding for both, and these in turn have widened slightly."

The kingdom's bonds fell after Khashoggi, a Saudi 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. The murder and oil's slump into a bear market in the fourth quarter battered Saudi Arabia's securities, making them among the worst performers in the Gulf.

Finance Minister Mohammed Al-Jadaan said last month the nation intends to issue around 120 billion riyals (S$43.4 billion) of local and foreign-currency debt this year to help finance its deficit.

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"Notwithstanding the political noise surrounding Saudi Arabia in recent months, we expect pricing to tighten significantly" from the initial guidance, said Doug Bitcon, a fund manager with Rasmala Investment Bank in Dubai. "Index players will see this as an opportunity to pick up sizable Saudi exposure, which trades cheap versus its credit rating."

The kingdom's potential sale on Wednesday comes amid renewed appetite for riskier assets on speculation the US Federal Reserve will pause interest-rate increases this year. It also comes weeks before JPMorgan Chase & Co begins including bonds from Saudi Arabia in its emerging-market bond indexes. BNP Paribas, Citigroup, HSBC Holdings, JPMorgan and NCB Capital are managing the offering.

Khashoggi's murder won't be "a big factor in preventing investors coming back into Saudi Arabia now that the bonds will be eligible for inclusion in the JPMorgan indices," said Anders Faergemann, a fund manager at PineBridge Investments in London which oversees US$90 billion in assets. "Saudi authorities will have to decide between size and new issue premium, so I'm not sure the new bonds will be allowed to tighten as much as the Saudis would like."

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