Saudi Arabia planning first international bond sale

Dubai: Saudi Arabia is preparing to sell its first bonds in the international capital markets as it seeks foreign financing to plug its budget deficit.
The kingdom has sent invitations to banks to arrange the sale, according to three people familiar with the plans. It expects an issue of a "significant” amount and banks are expected to respond with proposals next week, one person said, asking not to be identified because the information is private. The sale will probably take place after the Muslim holy month of Ramadan ends July 5, he added.
Saudi Arabia is poised to join other countries from the six-nation Gulf Cooperation Council (GCC) in tapping foreign markets in a sign the world’s biggest oil-exporting region wants to move away from plundering rainy-day funds to bridge the $900 billion fiscal shortfall the International Monetary Fund (IMF) estimates they will face through 2021. Abu Dhabi raised $5 billion in a Eurobond sale last month and Qatar is meeting investors this week before a possible deal, its first after a five-year break.
Price sensitivity
"Fear of potentially rising funding costs in the third and fourth quarters and the announcement of Qatar issuing next week or week after caused some re-thinking on Saudi side,” Sergey Dergachev, a senior money manager who helps oversee $13 billion of emerging-market debt at Frankfurt-based Union Investment, said by e-mail. "I am sure price sensitivity of Saudi sovereign is a very important issue to them.”
Qatar will seek to raise about $5 billion in multiple tranches, three bankers familiar with the transaction said this month. Governments of Bahrain and Oman are also raising money from privately placed bonds, people familiar with the plans said this week. Calls and e-mails to the Saudi Finance Ministry outside of regular working hours weren’t answered or returned.
Saudi Arabia has been financing its budget deficit by selling local debt and drawing down foreign reserves. The central bank’s net foreign assets have tumbled by more than SR500 billion ($133 billion) since the start of 2015 to SR2.19 trillion in February.
The debut bond sale will follow the country’s first loan in at least 15 years as it seeks to fill a budget hole estimated at about $100 billion this year. Saudi Arabia sealed a $10 billion facility last month, three people with knowledge of the matter said.
Saudi Arabia’s credit rating was reduced last week to A1 from Aa3 in the second cut this year by Moody’s Investors Service as the decline in oil prices may lead to a "material deterioration” in the nation’s credit profile. The kingdom’s rating was also lowered by Fitch Ratings and S&P Global Ratings earlier in 2016.