Saudi Arabia: Bond issuance and buyback

GULF COUNTRIES - In Brief 18 Oct 2022 by Justin Alexander

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Today the Kingdom announced plans to issue a 6-year sukuk and a 10-year bond, its first dollar issuances in nearly a year, targeting about $3.5-4bn, as well as buying back bonds that mature over the next four years. The buyback tender was announced for the four Eurobonds that mature in 2023-6, which total $15.5bn (LSE). However, the maximum acceptance amount for the buyback will only be announced after the pricing of the new issuance (the initial guidance is +135bp for the sukuk and +180bp for the bond), which is expected to happen today (Rt, BB). It is therefore currently unclear whether the combined issuance and buyback is intended to extend maturity, reduce debt stock or raise new financing. This is Kingdom’s first-ever buyback of Eurobonds, although it has conducted several large maturity extending operations on domestic sukuk since 2020 (NDMC). It follows the region’s first Eurobond buyback tender by Oman in June, when $701m was bought across eight bonds maturing in 2025-32. This was part of Oman’s clear strategy of using the current oil windfall to reduce its debt stock and interest bill, which the Sultan reiterated in a cabinet meeting last week. Saudi Arabia, by contrast, has not indicated any definitive plans to reduce debt, although it is about half that of Oman in relative terms. Indeed, KSA’s recent Pre-Budget Statement estimated that debt would reach $263bn (25% of GDP) at end-2022, 5% more than was indicated in the 2022 budget and debt management plan, which had assumed that refinancing would hold debt flat relative at the end-2021 level; this higher level of debt was partly explained in terms of pre-financing for debt that matures in 2023, which could be...