Saudi Arabia's monster bond offer balloons to $17.5 billion as deal launches

Saudi Arabia's Crown Prince Mohammed bin Salman.
Joshua Roberts | Reuters

Saudi Arabia launched a $17.5 billion sovereign offering Wednesday in its first foray into the international bond market, drawing strong demand for the dollar-denominated offer.

The debt offering is a key part of the kingdom's economic reform plan as it would give Saudi Arabia a sovereign benchmark that would help open its capital markets for future offerings, such as corporate issues. It also is a necessary boost to cash flow to help the country withstand a long downturn in oil prices.

The deal was initially expected to be $10 billion-$15 billion, but demand was strong with a total order book of $67 billion. According to Informa Global Markets, the offering is the largest Middle Eastern sovereign deal and is now the largest emerging market deal, surpassing Argentina's $16.5 billion debt offering earlier this year. Moody's rates the Saudi bonds as A1 with a stable outlook and Fitch rates them AA- with a negative outlook. Argentina was a high-yield issue.

Final pricing terms were more favorable than initially anticipated, tighter by more than 20 basis points per issue. The $5.5 billion in five-year notes are expected to yield 135 basis points over the U.S. five-year Treasury; the $5.5 billion 10-year notes are expected at 165 bps over the U.S. 10-year and the $6.5 billion 30-year is expected to yield 210 over the U.S. long bond. The final deal pricing and allocations are expected at about 3 p.m. EDT.

Saudi officials ended a weeklong roadshow for the multi-tranche dollar offering with an investor meeting in New York on Tuesday.