Saudi Arabia raises $5 billion via dual-tranche bonds to plug fiscal deficit

Saudi Arabia launched $5 billion in a dual-tranche bond sale on Tuesday with tenors of 12 and 40 years, a document showed, as it seeks to plug a large fiscal deficit.

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The kingdom sold $2.75 billion in 12-year bonds at 130 basis points (bps) over 10-year US Treasuries and $2.25 billion in 40-year notes at 3.45 percent, the document from one of the banks on the deal showed. It tightened the 12-year tranche by 35 bps and the 40-year by 30 bps from initial price guidance.

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It drew more than $13 billion in orders for the 12-year bonds and over $9 billion in orders for the 40-year paper.

“The final pricing is in line with the sovereign curve and the high order book shows robust investor appetite for the region’s debt markets. This is sure to be the first of many deals by the kingdom this year,” a fixed-income strategist said.

The government expects to post a fiscal deficit of 141 billion riyals ($37.59 billion), or 4.9 percent of gross domestic product, this year after an expected deficit of 298 billion riyals ($79.45 billion), or 12 percent of GDP, in 2020.

Saudi Arabia expects public debt to increase to 937 billion riyals this year from 854 billion riyals last year.

“The Government expects to finance the budgeted deficit for the fiscal year 2021 primarily through a combination of raising domestic and external indebtedness, to the extent necessary,” according to a bond prospectus seen by Reuters.

Its fiscal balance program foresees the ratio of public debt to nominal GDP reaching up to 30 percent by 2023, the prospectus said.

Saudi Arabia hired Goldman Sachs International, HSBC and JPMorgan as global coordinators for the debt sale. BNP Paribas, Citi, NCB Capital
and Standard Chartered joined them as book runners and were also passive joint lead managers.

Last year, Saudi Arabia raised $12 billion via two international bond sales.

Its oil giant Aramco raised $8 billion from a five-part bond sale in November, in part to pay out dividends -- the bulk of which goes to the Saudi government.