According to sources, the Government of Saudi Arabia appointed JPMorgan Chase & Co., HSBC Holdings Plc and Citigroup Inc. to arrange its first international bond sale of atleast $10bn.
The banks would act as the global coordinators on the issue and additional banks would be added later as joint lead arrangers and book-runners on the deal.
Previously in April 2016, the kingdom had issued a $10bn loan, its first in 15 years from a group of U.S., European, Japanese and Chinese banks.
Saudi Arabia plans to engage with bankers in Riyadh next week as part of its plan to launch its debut international bond of about $15bn as early as July 2016.
The Kingdom’s ministry of finance and a newly-formed debt management office would meet lenders on 6 – 7 June to hear proposals on how to organise the cash-strapped government’s first dollar-denominated bond.
Banks expected to take part include the Bank of Tokyo-Mitsubishi, HSBC and JPMorgan Chase, which were lead lenders on the kingdom’s $10bn loan in April 2016. Others thought likely to take part in the talks include BNP Paribas, Citigroup, Deutsche Bank, Goldman Sachs and Morgan Stanley.
Bankers involved state that the current issuance could comprise of 30-year bonds and the Kingdom could follow it up with further issuances later in 2016 and, potentially, one in 2017.
The Kingdom of Saudi Arabia plans on issuing debt in the international markets later in 2016 to stem the sharp decline in foreign exchange reserves, following a depressed crude oil market.
A number of banks have been asked to indicate their terms on raising the sovereign debt issuance.
The size and maturity of Saudi Arabia’s first international bond has not been disclosed publicly, but according to credit analysts at two European banks, the kingdom may borrow at rates about 200 basis points above equivalent US Treasury bonds.
Previously, in April 2016, the kingdom raised a $10bn, 5-year loan from banks including JPMorgan, HSBC and Bank of Tokyo-Mitsubishi in a deal that was several times subscribed and allowed the government to increase the sum borrowed.
The loan is seen as a first step towards sovereign bond issuance and Saudi officials have said that the kingdom could increase debt levels from less than 7% of gross domestic product in 2015 to 50% of GDP by 2020.
Saudi Arabia’s debt plans come as falling oil prices encourage other Gulf countries, including Abu Dhabi and Oman, to turn to capital markets for funding.
Separetely, Saudi Arabia’s credit rating has been downgraded by all three big global rating agencies this year.
Oil rich Saudi Arabia is raising a $10bn, five year loans, as it battles falling crude oil revenues and reserves. According to bankers close to the deal, the loan has a spread of 120bps over Libor.
The issuance was upsized from $6-8bn to $10bn on stronger investor demand.
The issuance provides the kingdom funds as it has burned about $150bn of foreign reserves since 2014 due to the worst slump in crude oil prices.
Leading lenders HSBC, Bank of Tokyo-Mitsubishi and JP Morgan, pledged about $1.3bn each. Minimum bids for the loan were at $500m to qualify as a participant.
This issuance, a first by the kingdom since 25 years, could prompt further issuances by other neighboring nations such as Abu Dhabi which has mandated banks ahead of its third international bond issuance.
Oil prices rose in trading in Asia on Wednesday on rising expectations that producing nations would agree on freezing their output amid global oversupply.
Expectations rose after The Kuwaiti governor for the Organization of the Petroleum Exporting Countries (OPEC), Nawal Al-Fuzaia, stated on Tuesday that there were positive indications an agreement would be reached during an OPEC meeting scheduled in Qatar on 17 April 2016.
Front month U.S. West Texas Intermediate (WTI) crude futures traded at $36.74 per barrel, up 2.3% percent from their last settlement price. International Brent futures were up 1.7% at $38.50 a barrel.
An initial freeze on output was agreed to in February, which has helped oil prices rise to almost $38 a barrel from a 12-year low close to $27 in January.
However, prices have continued to decline recently as doubts persist whether a wider deal would be reached, largely because Iran has not shown any indication of slowing its production after crippling sanctions against it were lifted in January.
With barely a week passing by since top crude oil producers discussed the possibility of freezing output to prop up crude oil prices, Saudi Arabia has already ruled out a production cut. Saudi Arabia’s oil minister Ali al-Naimi stated that the co-ordinated production cuts would not fructify as many producing nations were not willing to do so.
It is also known that Iran has already ruled out freezing output. Non-OPEC member Russia has so far agreed to reducing its supply.
Iran’s oil minister Bijan Zagahneh was quoted as describing the move as a “joke”. His comments came as nations had asked Iran to restrict output to 1m barrels a day but increased theirs to about 10m barrels for export.
This sort of a disagreement continues to keep WTI Crude at $31.48 (NYMEX) and Brent Crude at $32.95 a barrel.