Saudi Arabia is tapping international investors for a new set of debt, with several heavy-hitting western banks stepping forward to manage the deal despite international outrage over the killing of journalist Jamal Khashoggi and deep concern over the Kingdom’s actions in neighbouring Yemen.
Less than three months after professing alarm at the gruesome death of the Washington Post columnist and scaling back their presence at a showcase economic forum in Riyadh in response, BNP Paribas, Citigroup, HSBC, and JPMorgan are all managing the deal alongside NCB Capital — Saudi Arabia’s largest asset manager.
Each bank has broad interests in the kingdom and across the region. None had any immediate comment on the decision to participate in the deal.
Saudi Arabia has been reeling from western condemnation of the violent killing of the critical journalist last year, which has been blamed on Crown Prince Mohammed bin Salman, the country’s main policy driver.
Last week, 11 suspects were put on trial for his alleged murder, with the government denying Prince Mohammed’s involvement.
Lawyers say inward investment deals have been put on hold given uncertainty in the wake of the killing.
The dollar bonds, which will price on Tuesday, mature in both 2029 and 2050 and will provide a new test of funds’ willingness to invest in the country. Early indications are that Saudi Arabia will pay between 2 and 2.5 percentage points above the relevant US government bond benchmarks for the issues — more generous pricing than in its international bonds last year.
Bankers say that the heavier price tag for the kingdom reflects jittery market conditions and higher borrowing costs across the board. “The entire market is wider than last year,” said one banker following the deal.
Factors such as a lower oil price, higher US interest rates and general market sentiment would likely feed into the bond’s pricing. “I don’t think there is any political impact,” he added.
Saudi Arabia’s 2019 budget pledged to boost expenditure by 7 per cent as the government seeks to kick-start a private sector bruised by years of lower state spending since the 2014 oil crash and the impact of structural reforms, including higher energy prices and fees on expat workers.
Another dip in oil prices could also complicate the finance ministry’s aim of balancing the budget deficit, forecast at 4.2 per cent this year, by 2023.
The Saudi budget for this year forecasts public debt of 678bn riyals, or 21.7 per cent of gross domestic product, compared with 560bn riyals, or 19.1 per cent of GDP in 2018.
As well as raising debt to fund the deficit, state-related entities are also likely to tap bond and loan markets to raise cash.
One Dubai-based global asset manager said the Saudi government and related entities may require around $100bn of financing over the next year.
“Raising these amounts in the international capital markets will be challenging but it would be a grave error to rely too much on domestic sources of capital,” he said.
Saudi Aramco, the state oil giant, is expected to raise up to $40bn in debt, perhaps in two tranches, to help fund an expected $70bn transaction to acquire petrochemicals firm Sabic, bankers say.
The deal, hatched after the postponement of the Saudi Aramco IPO, aims to transfer cash to the sovereign Public Investment Fund, the crown prince’s principal investment vehicle tasked with diversifying the oil-dependent economy.
