23/10/2016 05:35 AST
The GCC sovereign raised $17.5 billion through its offering of $5.5 billion of five-year, $5.5 billion of 10-year and $6.5 billion of 30-year notes.
Some market sources suggested there was an element of egotism about the deal, which just eclipsed Argentina's $16.5bn transaction earlier this year. Indeed, it's the biggest syndicated bond deal by any sovereign.
Yet bankers close to the deal say there was no deliberate strategy to achieve a record size.
Instead, the leads said that as the trade evolved, the $17.5 billion size became the best option in attaining the appropriate price and distribution, given the level of demand.
Books reached an incredible $67 billion, with some accounts putting in $1 billion orders across different portfolios. Interest came from high-grade accounts, emerging markets investors, commodity funds, insurers, central banks and other financial institutions as the opportunity to get yield from a Single A sovereign proved compelling.
After the books went subject, the global coordinators put forward a range of size options to Saudi officials from $10 billion to $20bn-plus, in $2.5 billion increments.
"The question was what were the price breaks for each option," said a banker at one of the leads.
The sovereign could have raised $10 billion, which was the amount many investors had expected, at much tighter levels but that would have left many accounts under-allocated. One of the main aims was to get true global distribution and not rely on local demand.
A $20bn deal, on the other hand, might have felt too big, especially as Saudi is expected to become a regular issuer.
"The balance of size, price and distribution was best at US$17.5 billion. That was the point that everything came together," said the banker.
STRIKING
Most striking was the 30-year note issue. "The 30-year was a statement," said a second banker at one of the leads.
Saudi subverted the usual thinking around size and tenor on a multi-tranche transaction by making its longest-dated security the biggest. It was a move applauded by rival bankers.
"It's a sensible strategy to take more out of 30 years right now, given the quality of demand in that part of the curve," said one banker away from the deal.
Momentum for the 30-year tranche was driven by Asian accounts, such as life insurers, vindicating a decision to undertake a non-deal roadshow in Taipei and Singapore in July.
"That worked so well," said a third banker involved in the deal about the Asia meetings. "The minute we announced the deal we got a 100 percent hit ratio from Asia. It wasn't a long list but all the life companies bought [the 30-year] because they were ready and wanted long-dated paper."
Asian investors took 22 percent of the 30-year tranche, though US buyers got the most with 44 percent.
SAME SPREAD
Interestingly, Saudi (A1/A-/AA-) priced the 30-year at the same spread as where higher-rated Qatar (Aa2/AA/AA) printed its similar-dated bonds in May, at 210bp over Treasuries.
And at 4.5 percent, the coupon on Saudi Arabia's 30-year was inside the 4.625 percent on the Qatar June 2046s.
The five-year tranche was the most popular. There was plenty of interest from Middle East banks, which liked the tenor, but in terms of the actual allocation US and European investors got the biggest portion, with a combined share of 74 percent.
The 10-year tranche, meanwhile, was like a traditional 144A/Reg S emerging markets offering at that tenor, backed as it was mostly by institutional accounts from Europe and the US, though Middle East investors also got a decent chunk.
That tranche was tightened the least from initial price thoughts: by 20bp, compared with the 25bp undertaken on the five and 30-year tranches - a reflection of the price sensitivities of US real money managers.
The 2021s were priced at 135bp over Treasuries, the
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