The Saudi government plans to issue dollar-denominated bonds on the international market this coming October. It is expected to issue $10 billion worth of bonds across three tranches: the first with a 5-year maturity, the second for 10 years, and the third for 30 years. It has selected major banks to arrange its first international bond issuance, including the U.S. financial services firm “Citigroup,” the British bank “HSBC,” and the American bank “J.P. Morgan Chase.” They will coordinate the offering for the upcoming conference.
By holding the conference, the Saudi government aims to attract financial institutions—including global sovereign wealth funds, bond funds, and hedge funds—given their substantial financial resources, as they are the primary target investors.
According to a report by the Economic Agency, the timing and size of the offering may change in light of global financial market conditions. One source noted that the Kingdom will not be affected by a potential interest rate hike in the United States next month, which has increased interest in this offering among most global financial institutions.
The Saudi government’s intention to make this decision stems from its aim to finance its economic transformation plan and cover the deficit in its 2016 budget, which is estimated at approximately 13% of the country’s gross domestic product, resulting from the decline in global oil prices, which account for the lion’s share of Saudi budget revenues, according to International Monetary Fund estimates.
A number of bankers and experts explained that the Kingdom’s issuance of dollar-denominated bonds is in the economy’s best interest and will help provide liquidity within banking institutions and facilitate credit operations for the private sector and individuals, They emphasized that there are no concerns regarding this move, as long as the Kingdom sells in dollars and receives its returns in dollars; consequently, borrowing in dollars will not affect the Saudi economy or its foreign exchange reserves.
