Saudi Arabia Raises Record $17.5 Billion in Bond Sale

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Mohammed Bin SalmanThe kingdom of Saudi Arabia has successfully raised a record $17.5 billion in bonds for sale on the international market as it works to reduce its considerable dependence on oil.

The oil-rich nation on Wednesday raised the highest amount through a bond sale by any country with an emerging market. It surpassed the previous record held by Argentina, which pulled in $16.5 billion in similar sale back in April.

Analysts had expected the bond sale to raise an amount in the range $10 billion to $16 billion.

An anonymous person who is familiar with the matter said the Saudi government put on sale dollar-denominated bonds which are due in five years and generating 135 basis points more than U.S. Treasuries with similar maturity. It also offered 10-year notes at 165-basis-point spread and 30-year bonds at a spread of 210-basis points.

Sources with knowledge of the bond sale said investors offered about $67 billion in bids.

It was the first sovereign bond sale of a country that has for so long tried to avoid international debt burden until now. The slumping revenue has certainly contributed to the kingdom’s decision to source fund from the international debt market.

The economy of Saudi Arabia, which depends significantly on oil, has been pounded by the decline in prices which some have described as the worst crash in a generation. It recorded huge budget deficits of $98 billion last year, with the figure estimated as being equal to 15 percent of the country’s gross domestic product.

Some analysts have said the kingdom’s economy stands at risk of collapse unless drastic actions are taken to improve the financial situations.

The latest bond sale followed days after kingdom officials made presentations to potential investors in New York, Los Angeles, Boston and London. They emphasized efforts being made by the government to diversify the Saudi economy.

“The program which we have heard in the roadshow over the next five to 10 years is really quite dramatic,” Richard Segal, a senior analyst at London-based Manulife Asset Management, told Bloomberg TV. “They want to really transform the economy because they realize that given how young the population is, they would need to transform away from oil anyway.”

Saudi Arabia has been calling for some oil-producing countries to cut back on oil output to shore up prices. Minister of Energy and Industry Khalid Al-Falih claimed many countries are willing to join OPEC members in reducing output, even though Russia is the only non-OPEC producer to have signified interest so far.

The kingdom is believed to be the architect of its own fiscal challenges, though. This is because it refused to yield to request to cut production when the slump in the oil market was gaining momentum in November 2014. Its decision was thought to have been influenced by its desire to drive American shale oil producers out of the market.

Deputy Crown Prince Mohammed bin Salman leads the drive to make the $650 billion economy more open. There is also plan to make it easier for foreign investors to participate on the $350 billion Tadawul Stock Exchange among other measures aimed at opening up the economy.

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