Saudi Arabia sold sukuk worth $2.5bn billion on Tuesday as the kingdom tries to offset the impact of lower oil prices on state revenue.
The sale of Islamic bonds comes just days after oil giant Saudi Aramco delayed an initial public offering by at least a few weeks. That followed last month’s drone and missile strikes on Aramco’s facilities, which briefly halved its output.
The sukuk offer a profit rate equivalent to 127 basis points over mid-swaps, a document showed. That is around 20 basis points below the level at which the bonds were marketed earlier on Tuesday, a sign that hefty demand allowed the kingdom to tighten the pricing.
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. One source close to the deal said orders for the deal had peaked to nearly $14bn, Reuters reported.
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.
Saudi Arabia has been going to the bond market to take advantage of the low borrowing costs in hopes of replenishing its coffers as persistently low oil prices depress revenues. This year it raised $3.3bn in its first bond sale in that currency and $7.5bn in conventional bonds in January.
Saudi Arabia planned to issue about $32bn in local- and foreign-currency debt this year to fund its budget deficit. JPMorgan Chase & Co, Standard Chartered and Aljazira Capital managed Tuesday’s sale.
Source International Investment