Saudi Arabia Hires Banks for First Global Bond Sale

Saudi Arabia Hires Banks for First Global Bond Sale

Saudi Arabia has hired J.P. Morgan, HSBC and Citigroup to help sell its debut international bond, a source said on Sunday, as the kingdom seeks to shore up its finances hurt by low oil prices.

Saudi Arabia has already secured a $10 billion loan from a consortium of international lenders in April and has sold debt to its domestic banks.

Saudi Arabia and its Persian Gulf neighbors—whose principal source of revenue stems from the sale of oil and gas—are increasingly borrowing from international markets as government finances are under strain due to a prolonged period of low energy prices.

Qatar last month sold $9 billion worth of bonds, while Oman recently raised $2.5 billion and the emirate of Abu Dhabi preceded them with a $5 billion bond sale.

The kingdom’s finance minister earlier this month said the country was preparing to tap international markets for the first time.

Fund managers and bankers have speculated Saudi Arabia’s bond size may exceed Qatar’s $9 billion, but the Saudi minister said then there was no decision on the final amount the country wished to raise.

“As of now, the size is undetermined, it will depend on market appetite,” said the person familiar with the matter. The Saudis have also not decided on the exact timing of the bond sale, the person said.

Saudi Arabia’s ministry of finance wasn’t immediately available to comment.

Sovereign borrowing in the Gulf in on track to reach a record level this year in stark contrast to the past decade when the region was awash with petrodollars that these countries used to generate rapid economic growth.

Saudi Arabia, one of the world’s leading oil exporters, ran a budget deficit of nearly $100 billion last year as a result of the decline in crude prices. The kingdom has since then outlined a broad economic reform package, that includes selling state assets and raising taxes, aimed at reducing its dependence on oil. Until now, the country has plugged its deficit by drawing down its foreign assets by about $165 billion since August 2014 and by selling domestic bonds.

Without those measures and at the current pace of spending, the International Monetary Fund warned that Saudi Arabia could run out of funds within five years. Ratings firms have also downgraded the kingdom’s debt rating in recent months.