16/10/2016 07:26 AST
Saudi Arabia’s global bond program is sending a strong message to the international community, global financial institutions and mega investors that it is very serious about its economic reform process and is looking for more integration with the world economy in an era of low oil prices, according to analysts.
Saudi Arabia plans to use proceeds from the debt sale to help fund its economic transformation plan.
There are also plans to sell a stake in Saudi Aramco and create the world’s biggest sovereign wealth fund. The Kingdom sees its oil reserves lasting about 70 years, according to the prospectus.
The first international issuance of Saudi government bonds is likely to exceed expectations because they may represent a safe haven for many big investors in light of the uncertain future of the international economy and the uncertainty of the outcome of the US elections, a financial analyst associated with the London Stock Exchange told the local media.
Speaking to Arab News, London-based James Reeve, deputy chief economist and assistant general manager at Samba Financial Group, said: “I am not surprised the bond issue is generating enthusiasm.”
Reeve added: “The pricing has yet to be decided but in a world of negative yields anything above 1.5-2 percent for the ten year is bound to get a good response. This is a country with the largest proven oil reserves, substantial financial buffers and a government committed to fundamental economic reform.”
A regional analyst, who declined to be named, told Arab News: I think the interest in the Saudi offering will be strong. It is an attractive issue in terms of the rating.”
He added: “For many investors, it offers an attractive yield and diversification opportunity. It also comes with a potentially significant upside, both in terms of the oil price and Saudi Vision 2030, i.e. the prospect of a significantly more competitive and diverse economy.”
Besides the recent talks in London with investors, meetings in the US will discuss the Saudi plan to issue dollar denominated bonds for a period of five, 10 and 30 years.
The government published a bond prospectus of around 220 pages rich in information about the financial market in Saudi Arabia.
Saudi Arabia is joining a wave of developing nations raising cash before the November ballot in the US and as US Federal Reserve interest-rate hikes draw closer.
Bloomberg earlier reported that Saudi Arabia missed September’s annual surge in new debt deals, but the timing for its first foray into the international bond market may prove to be just right.
According to the prospectus, Saudi Arabia’s non-oil sector contributed 71.5 percent to Saudi Arabia’s total nominal GDP in the year ended Dec. 31 2015, compared to 56.8 percent and 53.0 percent in the years ended Dec. 31 2014 and 2013, respectively.
The contribution of the non-oil sector to government revenues was 27.5 percent, 12.5 percent and 10.5 percent in the fiscal years 2015, 2014 and 2013, respectively, while non-oil exports accounted for 24.9 percent, 16.9 percent and 14.4 percent of Saudi Arabia’s total exports by value in the years ended Dec. 31 2015, 2014 and 2013, respectively.
While the contribution of the non-oil sector to Saudi Arabia’s economy is gradually increasing on the basis of recent trends, oil exports and oil-related revenues still constitute a high proportion of Saudi Arabia’s total export earnings and government revenues, respectively, the prospects added.
Saudi Arabia’s economy accounted for 46.2 percent of the combined nominal GDP of the GCC countries and 20.7 percent of the combined nominal GDP of the countries in the MENA region in the year ended Dec. 31 2015.
According to OPEC’s 2016 Annual Statistical Bulletin, Saudi Arabia possessed the world’s second largest proven oil reserves (accounting for 17.9 percent of the world’s total oil reserves) as at Dec. 31 201
Arab News
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