Saudi Arabia Is Raising Money Again With International Bonds -- Update

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01/09/2019 | 08:37 pm


By Nicolas Parasie and Margot Patrick



DUBAI -- Saudi Arabia sold $7.5 billion in bonds Wednesday, drawing support from international investors in the kingdom's first debt sale since the killing of journalist Jamal Khashoggi.



The bond sale is backed by several high-profile Western banks, suggesting they are willing to work with Saudi Arabia despite the furor over Mr. Khashoggi's death in October at the hands of Saudi agents. BNP Paribas, JPMorgan, HSBC, Citi and NCB Capital arranged the bonds, which people close to the transaction said attracted $27 billion in orders.



The Saudi bond sale extends a borrowing spree that began in 2016 when, faced with a drop in oil income, the country turned to international debt markets to shore up its finances and bankroll its ambitious diversification efforts. In 2 1/2 years, Saudi Arabia has sold close to $60 billion in bonds, becoming one of the biggest issuers of debt among emerging markets.



A $4 billion 10-year bond was priced at 175 basis points over U.S. Treasury bond benchmarks and a $3.5 billion 31-year bond priced at 230 basis points. While those prices offer relatively generous yields for investors, they are similar to what Saudis have paid in the past on bonds and show that demand hasn't withered for their debt since Mr. Khashoggi's death.



Few firms since Mr. Khashoggi's death have publicly cut ties or sought to diminish their relationship with Saudi Arabia beyond cancellations at a marquee investment conference in Riyadh in October.



"The hunger for yield may trump the conscience of bankers," said one banker in the region of the bond sale.



At HSBC, a bank with decadeslong ties to Saudi Arabia, executives have privately said they view the Khashoggi death as unacceptable and that message was transmitted to country officials. But they pointed to human rights abuses by other countries where the bank operates, and said the matter wouldn't disrupt its relationship with Saudi Arabia.



HSBC holds a roughly 29% stake in what will be the country's third-largest bank by assets after a three-way bank merger completes this year.



Along with other international banks and companies, HSBC Chief Executive John Flint pulled out of October's Future Investment Initiative conference in Saudi Arabia but other top executives attended and sat on panels. Mr. Flint in late October said the world relies on Saudi Arabia for its oil and the bank had a duty to customers and employees there to maintain its relationship.



Executives at other banks and companies have echoed those sentiments. JPMorgan, HSBC and Citi earned the most from Saudi Arabia investment banking business last year, Deologic data show.



Saudi authorities say Mr. Khashoggi was killed by a team of rogue operatives who are being held accountable. The kingdom's prosecutors are conducting trials for 11 suspects.



The Central Intelligence Agency concluded that Crown Prince Mohammed bin Salman ordered Mr. Khashoggi's death. Turkish authorities say the operatives were acting on orders from Riyadh.



The bond issuance comes at a time of financial strain for Saudi Arabia. Last month, the kingdom announced record new spending, despite a decline in oil prices that would open up a wide budget deficit. Saudi Arabia's public debt stands at around 19% of gross domestic product and officials have previously said it could grow to about 25% in 2021.



Saudi bonds have generally generated strong demand from investors drawn to the kingdom's financial strength underpinned by enormous oil reserves. Saudi Arabia is rated A1 and A+ at Moody's and Fitch, respectively.



Saudi Arabia joins Turkey and Israel, who are also selling international bonds.



--Emese Bartha contributed to this article.



Write to Nicolas Parasie at nicolas.parasie@wsj.com and Margot Patrick at margot.patrick@wsj.com





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