Saudi Arabia Issues Record Amount of Debt

  December 12, 2016

Saudi Arabia issued a record $17.5 billion by selling government bonds in October, setting a record as the largest debt issuer of any emerging market country. Demand for the bonds were tremendous, meaning that there is confidence in the country’s ability to make the bond payments. The bond issuance is a first for the country, which has been almost entirely financed by oil export revenue for decades. With oil prices having dropped from their highs of  the $110-120 range in 2011/2012 to the current levels of $45-50 a barrel, revenue for the country has fallen in line with oil prices. The issuance of the bonds were ideally timed as demand for yield has been insatiable. Bonds maturing in 10 years yielded 3.41% on the issuance, an attractive yield relative to developed market 10-year debt currently yielding 0% to 2% for Japanese, German, and U.S. government bonds. 

Bond analysts expect further bond sales by Saudi Arabia, as the country’s cash reserves have fallen below $600 billion, down from nearly $1 trillion about three years ago when oil prices were much higher. The kingdom’s budget deficit is now roughly 15% of GDP, compared to a 6% surplus three years ago.

 

Sources: Bloomberg, Saudi.gov.sa

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