Saudi Arabia to raise $17.5 billion with biggest-ever developing nation bond issue

RIYADH, Saudi Arabia - Turning to international debt markets for the first time to offset declining oil revenues, Saudi Arabia is likely to raise a whopping $17.5 billion with a global bond issue, billed as the biggest-ever gilt sale by a developing nation. 

The kingdom reportedly aims to sell dollar-denominated 5-year bonds yielding 135 basis points more than similar-maturity U.S. Treasuries, 10-year notes at a spread of 165 basis points, and 30-year securities at 210 basis points. 

According to sources in knowledge of the development, the Saudi government plans to raise $5.5 billion in each of the five and 10-year bonds and $6.5 billion in the 30-year debt.

The bond sale will overshadow Argentina’s $16.5 billion offering in April as the largest from a emerging-market nation.

Market analysts feel the timing of the bond issue was opportune with crude oil prices trading over $50 per barrel, the U.S. elections still some weeks away, and an imminent rate hike by the Federal Reserve in December.

U.S. Treasury yields gained on Wednesday as dealers sold government bonds to hedge Saudi Arabia's bond issue. Benchmark U.S. 10-year Treasury notes were down 1/32 in price for a yield of 1.754 percent, rising 0.6 basis point from late on Tuesday.   

Saudi Arabia has been consciously making efforts to diversify the $650-billion economy away from oil, including a proposed initial public offering of state-run oil giant Saudi Aramco, and bolstering measures to make the $350-billion Tadawul Stock Exchange more accessible to foreign investors.

Since the start of falling oil prices, the kingdom has been drying up foreign reserves, raising debt through domestic issues, and even securing a $10-billion loan from international lenders earlier this year. The nation fetches about three-quarters of its revenues from oil exports.

Saudi Arabia posted a budget shortfall of $97 billion in 2015, equal to 15 percent of its gross domestic product, prompting the government this year to slash wages, subsidies and spending.

Exuding hope of continued improvement in oil prices, Minister of Energy and Industry Khalid Al-Falih has said nations are willing to join Organisation of the Petroleum Exporting Countries in cutting production. Russia is the only country so far to have said it’s contemplating a reduction or an output freeze, while most other non-OPEC producers said they won’t slash production.