RIYADH • Saudi Arabia is considering selling as much as US$15 billion (S$20 billion) worth of bonds this year in what would be the kingdom's first foray into international capital markets.
Encouraged by Qatar's record issue last week, Saudi Arabia is weighing a sale of at least US$10 billion in five-, 10- and 30- year bonds after Ramadan ends in July, people with knowledge of the matter said. No final decision has been made and the discussions are still at a preliminary stage, they said, asking not to be identified as the talks are private.
Governments in the six-nation Gulf Cooperation Council, which includes the two biggest Arab economies of Saudi Arabia and the United Arab Emirates, are turning to public markets after the plunge in oil prices punched holes in their budgets.
Qatar last week drew US$23 billion in orders for its US$9 billion sale, the biggest-ever from the Middle East.
Abu Dhabi raised US$5 billion from the sale of five- and 10-year securities in April, while Dubai is also said to be preparing an international bond sale this year.
"The government has talked about raising its debt-to-GDP ratio from basically near zero levels now - it must be 5 per cent 6 per cent now - to 50 per cent in the space of about five years," Mr Fahd Iqbal, the head of research in the Middle East at Credit Suisse, said yesterday. "If they do reach the 50 per cent target... that would be something to the tune of US$350 billion." Saudi Arabia's Ministry of Finance did not immediately return calls seeking comment.
Bond sales from the Middle East and North Africa have already climbed to a record US$32 billion this year, helped by the US$9 billion issue from Qatar last month and US$5 billion from Abu Dhabi in April, data compiled by Bloomberg shows. And Oman yesterday announced plans to issue bonds.
Saudi Arabia is undergoing an economic shake-up, led by Deputy Crown Prince Mohammed bin Salman, as it prepares for the post-oil era. One of the government's biggest challenges will be navigating the worst economic slowdown since the global financial crisis.
The Saudi authorities are cutting spending to plug a budget deficit that reached about 15 per cent of gross domestic product in 2015.
Saudi Arabia's credit rating was reduced to A1 from Aa3 last month in the second cut this year by Moody's Investors Service. The kingdom's rating was also lowered by Fitch Ratings and S&P Global Ratings earlier in 2016.
The country has been financing its budget deficit by selling local debt and drawing down foreign reserves. The central bank's net foreign assets have tumbled by more than 500 billion riyals (S$184 billion) since the start of 2015 to 2.15 trillion riyals in April.