Unjust deserts

10 January 2019 By George Hay Follow @gfhay

Riyadh’s successful $7.5 bln bond sale suggests investors have moved on from the Khashoggi murder. Yet long-dated Saudi debt trades at an implied discount to its rating. With the kingdom too optimistic about oil prices and facing peak demand, markets won’t always be so friendly.

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Saudi Arabia on Jan. 9 priced a $4 billion bond due to mature in April 2029 at 175 basis points over U.S. Treasuries and a $3.5 billion bond due to mature in January 2050 at a spread of 230 bps, IFR reported on Jan. 9.

That compares with initial price talk in the area of 200 bps and 250 bps respectively.

Investors placed orders exceeding $27 billion for the bonds, with a preference for the shorter-dated tranche.

The issue was arranged by BNP Paribas, Citigroup, HSBC, JPMorgan and NCB Capital Company.

Saudi Arabia is rated A1 by Moody's, A-plus by Fitch and A-minus by Standard & Poor’s.

The kingdom's Energy Minister Khalid al-Falih said on Jan. 9 he was confident that action to rein in output would bring the oil market into balance. Khalid al-Falih also said he would not rule out calling for further action.

Brent crude prices rose over 4 percent on Jan. 9 to above $61 per barrel. As of 0850 GMT on Jan. 10 they were trading at $60.70 a barrel.

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