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Saudis Raise $12.5B To Plug Budget Deficit From Low Oil Prices


Saudi Arabia said on Thursday that it had issued US$12.5 billion in three tranches of notes, the second issue under its Global Medium-Term Note program, as the desert Kingdom desperately tries to offset the budget deficit incurred by the lower-for-longer oil prices.

The Saudi notes were one tranche of US$3 billion maturing in 2023, a second tranche worth US$5 billion due in 2028, and a third tranche of US$4.5 billion maturing in 2047.

The issue—the largest government bond sale from an emerging market country this year—drew interest from international and local investors, with the order book peaking at US$40 billion.

The debt sale was Saudi Arabia’s third tapping of international bond markets, after the huge US$17.5 billion bond issue in October last year, which became the largest-ever emerging market bond sale and attracted orders totaling nearly four times that amount. In April, the Saudis raised US$9 billion in the first dollar-denominated international sukuk, or Islamic bond, sale, in which orders exceeded US$33 billion.

Saudi Arabia has resorted to tapping international bond markets after the oil price crash started to deplete government coffers and the Kingdom started to feel the sting in budget deficits, which were unheard of when oil prices were at US$100 per barrel.

Related: US Shale, End Of OPEC Cuts Could Stifle Oil Prices In 2018

Last month, the Saudi Ministry of Finance said that budget deficit had declined this year, with expenditures down and revenues up. In the second quarter of 2017, oil revenues rose by 28 percent year on year. Saudi Arabia plans to balance its budget by 2020 and increase non-oil revenues as it seeks to diversify away from oil. The planned initial public offering (IPO) of 5 percent of its oil giant Saudi Aramco is instrumental in that plan and in the Vision 2030 economic transformation program.

Saudi Aramco will enter crude oil trading as part of valuation-boosting efforts ahead of its planned IPO in 2018, unnamed sources close to the company told Reuters. Aramco Trading Company has so far dealt in oil products, base oil, and petrochemicals.

By Tsvetana Paraskova for Oilprice.com

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  • Kr55 on September 28 2017 said:
    Wonder what is going to happen in SA when vision 2030 is exposed as the sham it is. Lots riding on this imaginary and magic government created economy the prince is selling to his uneducated people.
  • Naomi on September 28 2017 said:
    How much interest on the notes? What collateral outside Saudi Arabia backs these notes? I do not trust Saudi Arabia to pay interest. Saudi Arabia is one revolution away from default.

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