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By Yousef Saba
DUBAI, Oct 18 (Reuters) – Saudi Arabia sold $5 billion in Islamic and traditional bonds on Tuesday, capping demand for more than $26. 5 billion as it made its first foreign bond sale in nearly a year.
The first bond sale of the most sensible oil exporter since November took place amid turbulent markets and heightened tensions with Washington over an OPEC oil output cut, as Riyadh prepares to host its annual investment convention next week.
The kingdom sold $2500 million worth of six-year sukuk at 105 basic issues (bps) above U. S. Treasuries. U. S. bonds and $2500 million in 10-year bonds at bps above UST, according to a bank filing.
This was reduced from the initial guidance of around 135 base issues (bps) in US Treasuries. UST for sukuk and around 180 bp in UST for the 10-year tranche.
“There have been very few Gulf sovereign issues this year and the market sees it as a gamble, while there is a lot of uncertainty elsewhere in the emerging space,” said Justin Alexander, head of Khalij Economics and Gulf analyst at GlobalSource Partners.
“Saudi Arabia is a logical replacement for Russia and its weight in indices like the JPMGBI (JPMorgan Government Bond Index) has continued to grow. “
Dino Kronfol, Franklin Templeton’s chief investment officer for global sukuk and MENA’s steady revenue, said after early signs that demand is expected to be strong with Gulf issuance down 60% this year and concessions visible in initial value targets.
“This will be enough to triumph over fragile sentiment in global markets,” Kronfol said.
Gulf bond issuance has fallen this year as the region benefits from high oil prices, with all six Gulf Cooperation Council countries expected to post surpluses, some for the first time in years.
Issuers have also been reluctant to access markets in a year marked by volatility and interest rates remain one component of a competitive tightening cycle through the U. S. Federal Reserve. The U. S. economy is expected to keep inflation under control, which has been at an all-time high for decades.
BNP Paribas, Goldman Sachs and HSBC are the global coordinators and joint underwriters of the debt sale, while Aljazira Capital, Citi, JPMorgan and Standard Chartered are the lead managers and passive joint underwriters.
Saudi Arabia’s Finance Ministry on Tuesday invited holders of its $3 billion bonds due 2023, $4. 5 billion maturing in April 2025, $2. 5 billion maturing in October 2025 and $5. 5 billion maturing in 2026 to deliver them in cash.
The amount accepted in the tender offering will be announced after the value of the new bonds and sukuk, which is expected on Tuesday.
Monday is the deadline for bondholders to participate in the public offering and indicative effects are expected next Tuesday.
Demand for the new bonds was likely supported by investors who submitted their existing notes to buy the new ones in cash, market resources said.
Abu Dhabi’s sovereign wealth fund, Mubadala, and Dubai’s largest bank, Emirates NBD, raised bonds from the region today.
Saudi Arabia’s sovereign wealth fund, the Public Investment Fund, raised $3 billion with bonds when it debuted in debt markets earlier this month.
Saudi Arabia raised $3250 million in sukuk bonds and bonds in November, after issuing bonds worth 1500 million euros in February and 5 billion dollars in January last year. (Reporting via Yousef Saba, editing via Angus MacSwan)