Saudi Arabia returns to the international bond market

Saudi Arabia returned to the international bond market this month in order to plug its twin budget and current account shortfalls. A total of $12.5bn of dollar debt was issued, split into three tranches – $3bn was sold at a five-year maturity, $5bn at 10-years and $4.5bn at 30-years. These were sold for yields of 3.01%, 3.76% and 4.66% respectively, a bit higher than those the Kingdom paid at its record-breaking $17.5bn bond sale in October last year. The proceeds from the bond sale should comfortably cover the Kingdom’s external financing requirements and almost half of the government’s budget shortfall over the next year. Accordingly – notwithstanding further transfers to the new sovereign wealth fund – foreign exchange reserves are unlikely to fall much beyond their current level. Fears that the riyal will be devalued should be kept in check. The bond sale means that the government’s debt-to-GDP ratio is set to rise to close to 20% this year.