Saudi Arabia plans to raise up to USD 17.5 billion from its first international bond issue, a media report said today, as analysts expect strong buyer interest.
It would make the Saudi issue the largest ever from an emerging-market nation, said Bloomberg News, which cited two people with knowledge of the offer.
The figure exceeds the USD 15 billion which an analyst had previously told AFP could be the value of the issue.
Saudi Arabia, the world's largest oil exporter, projected a budget deficit of USD 87 billion this year after a fall in oil revenues, which still account for most of its income.
To cover the shortfall, Saudi Arabia is re-orienting its economy by imposing unprecedented subsidy cuts, slowing government projects, and in September it chopped cabinet ministers' salaries, among other measures.
The kingdom last week began meetings with potential investors ahead of the bond issue.
According to the sources cited by Bloomberg News, the kingdom plans to sell dollar-denominated five-year bonds yielding about 140 basis points above US treasuries with similar maturity.
Saudi Arabia will also issue 10-year notes and 30-year securities at a premium, the report said.
It added the proposed pricing is also higher than neighbour Qatar's bonds which offer a similar maturity.
Christopher Dembik, global head of macroeconomic research at France's Saxo Bank, told AFP the kingdom's offer "is going to arouse strong interest on the part of investors", and could be four or five times oversubscribed.
He said investors are desperately looking for yield, and the Saudi offer "will be certainly slightly above that of its neighbours because of its less favourable sovereign debt rating and a recent global trend towards higher sovereign rates," he said.
Saudi Arabia has already issued domestic bonds but that has led to a tightening of bank liquidity, according to Patrick Dennis, lead Middle East economist at Oxford Economics in London.
"So that's the main reason why they're now borrowing overseas," he told AFP.
Saudi banks' loan-to-deposit ratio rose for the fifth consecutive month in August, reaching 90.8 per cent, because of faster growth in credit relative to deposits, Riyadh's Jadwa Investment said in a report this month.
Borrowing abroad also reduces the drain on the kingdom's foreign reserves, Dennis said.
Official data show those reserves declined to USD 562 billion in August from USD 732 billion at the end of 2014.
The reserves remain very large but their rapid drawdown shows a need for diversified funding, Dennis said.
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