Saudi Arabia is gearing up for a significant financial move as it plans to enter the global debt markets with a three-tranche bond. It will issue a three-tranche bond with varying maturities of six, 10, and 30 years.
The initial guidance for Saudi Arabia’s bonds reveals a benchmark-sized six-year bond with around 115 basis points over U.S. Treasuries (UST), 135 basis points over UST for the 10-year, and 195 basis points for the 30-year tranche. The term “benchmark-sized” typically signifies a bond issuance of at least $500 million.
Fiscal strategy
The bond issuance comes following Saudi Arabia’s recent approval of an annual borrowing plan, estimating financing needs for 2024 at $23 billion. The funds are intended to address a fiscal deficit and meet upcoming maturities. As the world’s leading oil exporter, Saudi Arabia is strategically diversifying its economy away from hydrocarbons through its Vision 2030 economic transformation plan.
With Vision 2030 at its core, the kingdom is steadfast in its commitment to diversify its economic foundations and stimulate domestic growth. Therefore, the allocated budget includes provisions for increased spending to bolster non-oil gross domestic product (GDP). Hence, this financial strategy aligns with the broader vision of reducing reliance on oil revenues.
Read: Saudi Arabia completes $12 bn bond issuance across three tranches
Global coordination
To facilitate this significant issuance, Saudi Arabia has enlisted the expertise of major global financial institutions. Citi, HSBC, J.P. Morgan Securities, and Standard Chartered Bank will act as global coordinators and joint book runners. In addition, Bank of China, Mizuho International, SMBC Nikko, and SNB Capital will serve as passive book runners, contributing to the successful execution of this expected bond issue.
This move follows Saudi Arabia’s successful bond issuances in the previous year. This includes a $10 billion three-tranche bond in January 2023 and a $6 billion Islamic bond in May. Therefore, Saudi Arabia’s ability to attract significant capital through these bonds underscores its creditworthiness and investor confidence.
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