Order books for Saudi Arabia’s debut international sukuk were in excess of $25 billion on Wednesday, lending support to expectations that the kingdom could push for a deal of at least $10 billion, fixed income investors said.
Saudi Arabia is raising funds internationally to diversify its revenues and to plug a budget deficit caused by a slump in international oil prices.
Its debut Islamic dollar bond, which is set to be the largest sukuk ever, would be Saudi's second record-breaking debt sale, after its first $17.5 billion conventional bond issued in October last year - the largest ever bond sold across emerging markets.
The sovereign had released initial price guidance on Tuesday in the 115 bps over mid-swaps area for the five-year tranche of its Islamic bond and 155 bps over mid-swaps area for the 10-year tranche.
That was higher than expectations, putting the new Islamic bonds more than 20 basis points wider than Saudi Arabia’s existing conventional bonds issued in October last year and maturing in 2012 and 2026.
Also read: S&P rating for Saudi economy positive
Price guidance tightened by only 10 basis points on Wednesday, which means the Islamic bonds still offer a considerable premium to their conventional counterparts, investors said.
Saudi Arabia could have targeted Islamic investors, or it could have opened the deal up to other investors too in order to increase the size, said one Dubai-based debt capital markets banker away from the deal.
“I think they went for the latter option, which implies they would need to price in line or slightly above the conventional curve in order to give it a modest new issue premium.” Books will close at 1000 GMT for European, Middle Eastern, and Asian orders, while books will close at 1230 GMT for US orders.
Citi, HSBC and JP Morgan are the global coordinators, joined by BNP Paribas, Deutsche Bank and NCB Capital as joint lead managers and bookrunners.