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Why Did Saudi Arabia Just Issue $2.5 Billion Worth Of Bonds?

The world’s top oil exporter, Saudi Arabia, is issuing US$2.5 billion worth of Islamic bonds, or sukuk, on Tuesday, returning to the bond market to take advantage of the low borrowing costs in hopes of replenishing its government coffers as persistently low oil prices depress revenues.        

Saudi Arabia has set the guidance for the ten-year bond at 145 to 150 basis points over the benchmark midswaps, according to a document from one the banks leading the issuance seen by Reuters.

Saudi Arabia has hired JP Morgan, Standard Chartered, and other banks to be lead managers of the sukuk issue, Reuters reported.

In recent years, the Kingdom has borrowed a lot of money on the international bond markets to offset the lower government oil revenues thanks to low oil prices.

In July this year, the Saudis issued a debut Eurobond of US$3.3 billion (3 billion euro). Since its first foray into international bond markets at the end of 2016, the Kingdom has raised as much as US$60 billion in international bond issues, according to Reuters estimates.

The latest issue comes a month after the September 14 attacks on vital oil infrastructure that knocked more than half of Saudi oil supply offline.

Related: Trump’s Latest Trade War Move Sends Oil Tanking

Despite the fact that Saudi Arabia moved to restore production capacity and assured the market that no oil shipment will be skipped, Fitch Ratings downgraded at the end of September its Long-Term Foreign-Currency Issuer Default Rating (IDR) on Saudi Arabia to A from A+, with a “stable” outlook.

“Although oil production was restored fully by end-September, we believe that there is a risk of further attacks on Saudi Arabia, which could result in economic damage,” Fitch said at end-September.

The downgrade is not expected to have any impact on investors’ interest in Saudi Arabia’s latest bond issue, Zeina Rizk, a fixed income director with Dubai-based Arqaam Capital, told Reuters on Tuesday.

By Tsvetana Paraskova for Oilprice.com

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