Saudi Arabia is reportedly aiming to raise $27bn in the debt markets by the end of the year, as the world’s largest oil exporter country feels the impact of lower crude prices. The Kingdom made its first sovereign issuance since 2007 in July, with a $4bn local bond offering. It now is set to raise an additional $5.3bn a month by the end of the year.
Kaan Nazli, emerging market debt senior economist at Neuberger Berman, believes the ‘exceptionally strong’ Saudi sovereign will attract widespread investor interest:
“The Saudi government bond issue will definitely attract interest, as it offers investors the opportunity to lend to an exceptionally strong sovereign at elevated spreads due to temporary shocks.
“Saudi Arabia’s public debt stood at 6.5% of GDP at the end of 2014 and would stay under 10% even if the $27bn bond plan was implemented. Its budget deficit has risen this year, not only on the oil price decline, but also due to one-off fiscal outlays following King Salman’s accession to the throne in January. This included a two-month bonus payment that was mirrored by many state-owned entities and the private sector.
“While the large fiscal expenditures and infrastructure projects are pushing the deficit higher this year, it is also keeping domestic activity resilient, helping to partly offset the oil shock. The economy is also benefiting from government steps to spur real estate development.
“It is also important to note that the cumulative fall in reserves due to the current oil shock is still half of the comparable decline seen in 2008-09. This highlights the Kingdom’s higher level of resilience this time around.”