Saudi Arabia returns to debt markets with dollar sukuk and bonds

SAUDI Arabia plans to issue new US dollar-denominated bonds and sukuk on Tuesday (Oct 18) in its first return to the debt markets in just under a year, and has offered to buy some of its existing notes for cash, a London Stock Exchange filing and a bank document showed.

The top oil exporter’s first bond sale since November comes amid turbulent markets and heightened tensions with Washington over an Opec+ oil production cut, as Riyadh gears up to host its annual flagship investment conference next week.

Initial price guidance for the new notes was around 135 basis points (bps) over US Treasuries (UST) for six-year sukuk and around 180 bps over UST for 10-year conventional bonds, the bank document showed.

“Demand should be strong with issuance in the GCC down 60 per cent YTD and concessions visible in initial price targets,” said Dino Kronfol, Franklin Templeton’s chief investment officer for global sukuk and Middle East and North Africa (MENA) fixed income.

“This should be enough to overcome fragile sentiment in global markets.”

Bond issuances in the Gulf have plummeted this year as the region reaps the rewards of high oil prices, with all six Gulf Cooperation Council countries expected to post surpluses, for some for the first time in years.

Issuers have also been wary of tapping the markets in a year that has been marked by volatility and as interest rates continue to rise amid an aggressive tightening cycle by the US Federal Reserve to tame decades-high inflation.

BNP Paribas, Goldman Sachs and HSBC are global coordinators and joint bookrunners on the debt sale, while Aljazira Capital, Citi, JPMorgan and Standard Chartered are passive joint lead managers and bookrunners.

Saudi Arabia’s finance ministry also invited holders of its US$3 billion bonds due in 2023, US$4.5 billion notes due in April 2025, US$2.5 billion bonds due in October 2025 and US$5.5 billion notes maturing in 2026 to tender them for cash.

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The amount accepted in the tender offer will be announced following the pricing of the new bonds and sukuk, expected later on Tuesday.

Monday is the deadline for bondholders to participate in the tender offer and indicative results are expected next Tuesday.

Saudi Arabia’s sovereign wealth fund, the Public Investment Fund, raised US$3 billion with green bonds in its debt markets debut earlier this month.

Saudi Arabia raised US$3.25 billion in bonds in November via sukuk and bonds, after issuing bonds worth 1.5 billion euros in February and US$5 billion in January last year. REUTERS