Saudi cre­ates bond mar­ket his­tory

Sov­er­eign sells big­gest EM bond New bench­mark for GCC

Kuwait Times - - BUSINESS -

LONDON: Saudi Ara­bia re-wrote the record books with its de­but in the in­ter­na­tional mar­kets on Wed­nes­day as it sold the big­gest emerg­ing mar­kets bond deal in his­tory, estab­lish­ing a new bench­mark for the Mid­dle East in the process.

The GCC sov­er­eign raised $17.5 bil­lion through its of­fer­ing of $5.5 bil­lion of five-year, $5.5 bil­lion of 10-year and $6.5 bil­lion of 30-year notes.

Some mar­ket sources sug­gested there was an el­e­ment of ego­tism about the deal, which just eclipsed Ar­gentina’s $16.5 bil­lion trans­ac­tion ear­lier this year. In­deed, it’s the big­gest syn­di­cated bond deal by any sov­er­eign. Yet bankers close to the deal say there was no de­lib­er­ate strat­egy to achieve a record size.

In­stead, the leads said that as the trade evolved, the $17.5 bil­lion size be­came the best op­tion in at­tain­ing the ap­pro­pri­ate price and dis­tri­bu­tion, given the level of de­mand.

Books reached an in­cred­i­ble $67 bil­lion, with some ac­counts putting in $1 bil­lion or­ders across dif­fer­ent port­fo­lios. In­ter­est came from high-grade ac­counts, emerg­ing mar­kets in­vestors, com­mod­ity funds, in­sur­ers, cen­tral banks and other fi­nan­cial in­sti­tu­tions as the op­por­tu­nity to get yield from a Sin­gle A sov­er­eign proved com­pelling.

Af­ter the books went sub­ject, the global co­or­di­na­tors put for­ward a range of size op­tions to Saudi of­fi­cials from $10 bil­lion to $20 bil­lion-plus, in $2.5 bil­lion in­cre­ments. “The ques­tion was what were the price breaks for each op­tion,” said a banker at one of the leads.

The sov­er­eign could have raised $10 bil­lion, which was the amount many in­vestors had ex­pected, at much tighter lev­els but that would have left many ac­counts un­der-al­lo­cated. One of the main aims was to get true global dis­tri­bu­tion and not rely on lo­cal de­mand. A $20 bil­lion deal, on the other hand, might have felt too big, es­pe­cially as Saudi is ex­pected to be­come a reg­u­lar is­suer.

“The bal­ance of size, price and dis­tri­bu­tion was best at $17.5 bil­lion. That was the point that ev­ery­thing came to­gether,” said the banker.


Most strik­ing was the 30-year note is­sue. “The 30-year was a state­ment,” said a sec­ond banker at one of the leads. Saudi sub­verted the usual think­ing around size and tenor on a mul­ti­tranche trans­ac­tion by mak­ing its long­est-dated se­cu­rity the big­gest. It was a move ap­plauded by ri­val bankers.

“It’s a sen­si­ble strat­egy to take more out of 30 years right now, given the qual­ity of de­mand in that part of the curve,” said one banker away from the deal. Mo­men­tum for the 30-year tranche was driven by Asian ac­counts, such as life in­sur­ers, vin­di­cat­ing a de­ci­sion to un­der­take a non-deal road­show in Taipei and Sin­ga­pore in July. “That worked so well,” said a third banker in­volved in the deal about the Asia meet­ings. “The minute we an­nounced the deal we got a 100% hit ra­tio from Asia. It wasn’t a long list but all the life com­pa­nies bought [the 30-year] be­cause they were ready and wanted long-dated pa­per.”

Asian in­vestors took 22 per­cent of the 30-year tranche, though US buy­ers got the most with 44%.

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