Saudi Arabia starts marketing its debut euro debt sale

The kingdom started marketing early on Tuesday an eight-year bond trance and a 20-year tranche



Saudi Arabia’s first bonds denominated in euros will go on sale on Tuesday, as the kingdom seeks to expand its financing sources to cover its budgetary needs in an era of lower oil prices.

The Saudis have sold nearly $60bn in international bonds since their debut as a global borrower in late 2016, making the kingdom one of the biggest debt issuers among emerging markets.

Its foray in the euro debt market – the first by a Gulf government – will allow it in the future to tap different investors at different times.

With Goldman Sachs and Societe Generale coordinating the transaction, Saudi Arabia started marketing early on Tuesday an eight-year bond trance and a 20-year tranche.

The initial price guidance for the eight-year bond was around 115 basis points over mid-swaps, according to a document issued by one of the banks leading the deal, equivalent to roughly a 3 per cent yield. Guidance for the 20-year tranche was around 170 bps over the same benchmark.

Saudi Arabia will use the proceeds from the debt sale for domestic budgetary purposes, according to the document.

Saudi Arabia’s budget deficit this year is expected to reach 7 per cent of gross domestic product, the International Monetary Fund predicted, above the government’s projection of 4.2 per cent of GDP.

The increase is mainly caused by higher government spending, which Riyadh needs to boost the economy and diversify it away from oil revenues, at the cost of heightening the kingdom’s fiscal vulnerabilities.

The initial price guidance puts the new bonds at roughly over 30 basis points above the Saudi existing dollar debt curve, fund managers said, though the pricing is likely to fall during the day as the bookbuilding proceeds.

BNP Paribas, Morgan Stanley and Samba Capital have been mandated as lead managers and passive bookrunners for the deal, which will be priced later on Tuesday.