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Abu Dhabi, UAEMonday 17 December 2018

Saudi Arabia raises 17bn riyals in first local Islamic bond this year

Government received investor offers of more than three times the deal size, sources said

Arriyadh Development Authority has launched a naming rights programme for 15 stations. Courtesy of Parsons
Arriyadh Development Authority has launched a naming rights programme for 15 stations. Courtesy of Parsons

Saudi Arabia raised 17 billion Saudi riyals (Dh16.65bn) from its first local Islamic bond sale this year as the biggest Arab economy seeks funds to bridge a budget deficit amid low oil prices.

The government received investor offers in excess of 51bn riyals, more than three times the deal size, according to a statement posted on the ministry of finance website. The kingdom sold 12bn riyals of bonds maturing in 2022, 2.9bn riyals of seven-year notes and 2.1bn riyals of 10-year bonds, according to the statement.

The 10-year sukuk was priced at 3.55 per cent, the seven-year at 3.25 per cent and the five-year securities at 2.95 pe rcent, according to people familiar with the sale who asked not to be identified.

The deal comes as lower oil prices and austerity measures weigh on Saudi Arabia’s economy. The government has forecast a budget deficit of 198bn riyals this year, or 7.7 per cent of economic output, although it appears on course to improve on that after reporting a first-quarter fiscal gap of 26.2bn riyals, government data showed in May. The deficit will be financed by issuing debt and drawing from reserves after it raised 97bn riyals from the sale of domestic bonds last year.

GDPcontracted in the three months through March for the first time since 2009 - illustrating the scale of the challenge facing the country’s new heir, crown rince Mohammed bin Salman, as he implements his blueprint for a transition away from oil dependency.

The government, which said on Sunday it started a local sukuk program of unlimited size, raised US$9bn from its inaugural sale of international Islamic bonds this year as it seeks to finance its budget deficit.

The kingdom’s three-part Islamic bonds had earlier been marketed to investors at between 2.9 per cent and 3 per cent for five-year securities, 3.25 per cent and 3.35 per cent for seven-year notes and 3.55 per cent and 3.65 per cent for a 10-year issue, people said, who asked not to be identified.

Bloomberg