Saudi Bonds Mark New Chapter

Saudis Hope to Play Expanding Middle East Debt Market

As I write this it is approaching 11pm Sunday here in Paris. For most of what had been a spectacularly beautiful fall day contacts in the banking world here have been mulling over the latest wrinkle in all things OPEC.

On Monday (i.e., when you are reading this), Saudi Arabia will be discussing a tranche of paper with U.S. market participants that could easily end up being $15 to $20 billion by the time it is issued. The interest here in Paris among bankers involves the anticipated spread between the highest-rated sovereign debt and the points the Saudis will be paying.

From the recent interest in OPEC paper, that spread is likely to be a narrow one. Abu Dhabi issued five- and ten-year bonds in late April, with both issuances at $2.5 billion. They carry interest rates of 2.125% and 3.125%, respectively. In addition, currently there are at least three emirate-supported companies seriously looking at issuances in the $2 billion to $2.5 billion range.

In May, Qatar moved into the market with $9 billion in five-year sovereign paper priced at U.S. bonds plus 120 basis points. The yield on that debt is holding steady.

The Abu Dhabi paper was easy to float while the Qatari issue ended up being much larger than anticipated due to significant oversubscription. Both bode well for the Saudis as the audio “road show” gets underway.

Paris is not the location where much of the initial paper is actually cut in such transactions but the city is a major center for financing activity. That means one talks to these guys, especially on how this OPEC debt will open up additional swaps in a once-again expanding emerging market debt market.

And there is much discussion surrounding the impending Saudi move.

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