Saudi stages ‘impressive’ comeback with $7.5b bond

Dubai: Saudi Arabia staged a comeback to the bond market attracting bids of $27 billion for a $7.5 billion, indicating robust appetite for the paper at a time when the US Federal Reserve has indicated a pause in future rate hikes.

“It’s a decent sized issue and the orderbook was impressive. However, I think a lot of the bullishness about emerging markets this year is predicated on a stable or weaker dollar,” Abdul Kadir Hussain, Head of Fixed Income Asset Management at Arqaam Capital told Gulf News.

Saudi Arabia sold $4 billion for a tenor of 10 years for 4.48 per cent yields and $3.5 billion of 31 years tenor for 5.328 per cent, sources told Gulf News.

“Given the size and that it was the first deal of the year I think there was a little bit of a premium demanded,” Hussain said.

The Federal Reserve has indicated a slow rise in interest rates with analysts expecting two hikes instead of the previous estimates of three hikes in 2019, and this would mean lesser demand for relatively lower yielding currency like the dollar. Analysts say this would prompt sovereigns as well as corporates to tap or front load the fund raising activity to take advantage of a pause in rate hikes.

Index inclusion:

The issue came in a three weeks before the Saudi Arabia along with the GCC marks entry in the JP Morgan Emerging market index.

“I think Oman, Qatar and Bahrain may have issuance needs in the first quarter and I think Saudi wanted to get ahead of all that supply. With index inclusion being so close I am not sure that the spread impact would have been significant,” Hussain said.

Overall the inclusion is expected to bring in $60 billion (Dh220 billion) of active and passive inflows in the region.

“Usually potential issuers would wait (for the inclusion first) before tapping the market since passive funds will buy the debt (which will lower the yields since there will be additional demands on the securities. It seems that Saudi did not want to take any chances for market conditions and decided to use this window of opportunity before the inclusion,” Mohammed Khnifer senior associate debt capital management at the Islamic Corporation for Development of Private Sector told Gulf News.