Saudi Arabia, one of the largest bond issuers in emerging markets last year, has started 2025 with a funding spree as the country fuels its vast economic transformation plan.
The kingdom’s sovereign wealth fund signed a $7 billion Islamic loan with a group of 20 international and regional banks, it said Monday. The announcement came hours after the finance ministry began a dollar-bond sale and days after it raised $2.5 billion from three foreign banks.
Under Crown Prince Mohammed bin Salman’s Vision 2030 agenda to transform the world’s biggest crude-oil exporter, the government is spending hundreds of billions of dollars on everything from new cities such as Neom to electric vehicles and semiconductors. It’s also hosting the men’s football World Cup in 2034.
Its budget is forecast to remain in deficit for the next few years at least, meaning it has to rely more on borrowing.
Brent crude is trading around $76 a barrel, below Saudi Arabia’s required level of more than $90 per barrel to balance its budget in 2025, according to the International Monetary Fund.
Saudi officials have said that some of their huge spending plans will be delayed while it focuses on priority investments, like preparing to host the Asian Games in 2027 and the World Cup. That’s partly due to funding constraints and to avoid overheating the economy, they have said.
Dollar Bond
The government started the process of selling its first bond of the year on Monday, a three-tranche dollar deal, according to a person familiar with the matter. Combined investor bids exceeded $30.5 billion, excluding the interest of the joined lead managers, the person added.
Citigroup Inc., Goldman Sachs Group Inc. and JPMorgan Chase & Co. are the main banks managing the transaction.
Pricing on the shortest tranche was tightened by 35 basis points to 85 basis points over US Treasuries. It moved by 30 basis points for both the six-year notes and for the longest bond. They are set to price at 100 basis points and 110 basis points over US Treasuries respectively.
The kingdom’s funding needs this year are estimated to be 139 billion riyals ($37 billion), the National Debt Management Center said in a statement late Sunday. Just over 100 billion riyals will cover the budget deficit, while the rest will be used to repay maturing debt, the NDMC said.
As well as bonds, the Saudi government is likely to issue loans. The $2.5 billion three-year revolving credit facility announced last week was raised from three banks. They were Abu Dhabi Islamic Bank, Credit Agricole SA and Dubai Islamic Bank, according to data compiled by Bloomberg.
The kingdom sold $17 billion of international bonds in 2024, second only to Romania among emerging markets, according to data compiled by Bloomberg. All the Saudi bonds were denominated in dollars. This year, the finance ministry’s said it may look at other currencies to diversify its funding base.
Saudi Arabia’s overall bond funding last year, including deals done by state-controlled entities such as the sovereign wealth fund, amounted to around $50 billion.
The government expects to post a fiscal deficit of about 2.8% of GDP this year.
Despite the high spending needs, the Saudi government has a strong balance sheet and plenty of room to take on more debt to support its investments, Goldman Sachs has said in recent months. In November, Moody’s Investors Service upgraded the country’s credit rating from to Aa3 from A1, on par with France and the UK, citing a positive outlook for the non-oil sector.
No comments:
Post a Comment