Saudi Arabia sticking to dollar and riyal debt issues for now, but other currencies possible

Saudi Arabia will focus on issuing bonds denominated in US dollars and riyals this year but may consider debt sales in other currencies over the longer term, the president of the kingdom’s Debt Management Office said yesterday.

“At least for 2018, we are not going to deviate away from our dollar and local issuances,” Fahad Al Saif said in an interview, predicting the dollar yield curve would become more stable this year.

“Issuing in other currencies is not currently part of our plan, but it is definitely part of our strategy,” he said.

Asked if Saudi Arabia might issue euro-denominated debt, he replied: “We’ll look into that. In the end it counts how fairly that particular market will be pricing Saudi, without adding any particular arbitrage into the pricing. I can confirm nothing at the moment.”

Saudi Arabia began issuing sovereign bonds abroad in 2016 with a mammoth $17.5 billion sale in order to cover a big state budget deficit caused by low oil prices, and immediately became one of the world’s top emerging market debt issuers.

The government has chosen banks for this year’s first dollar bond issue, bankers say, and they think the sale could occur in the next few weeks. Mr Al Saif said he hoped to conduct the issue in the first half of 2018, market conditions permitting.

Brent oil is now at $67 a barrel, compared to just above $50 when Saudi Arabia issued its first foreign bond. But Mr Al Saif said this did not necessarily mean Riyadh would cut issues, noting it still had a low public debt-to-gross domestic product ratio of 17 per cent, below an anticipated level of 30 per cent.

“We still have ample amount of capacity ... so we will continue to issue bonds again from a market development [perspective] whether we require

the funding or not. There will be issues to ensure we have a very stable yield curve in hard currency.”

Mr Al Saif was speaking on the day that authorities listed riyal government bonds on the Saudi Stock Exchange for the first time, part of efforts to spur secondary market debt trading. A total of 204.4bn riyals of bonds were listed.

Future issues of local currency government bonds will also be listed, encouraging investment by non-bank investors such as mutual funds and insurers, Mr Al Saif said.

He said plans were under way to make Islamic bonds issued monthly by the government more attractive for individual investors. The face value of the bonds may be reduced, and a plan to create a new type of savings sukuk for retail investors may be drafted this year, Mr Al Saif said.

He reiterated that authorities wanted about 65 per cent of public debt to be domestic and the rest foreign, plus or minus 10 per cent. Current outstanding debt is 58.5 per cent local and 41.5 per cent foreign, he said.

The stock exchange’s chief executive, Khalid Al Hussan, said the exchange eventually aimed also to list international bond issues by the Saudi government and companies. The financial infrastructure for this may be ready by early next year, he said.