Saudi Arabia goes global to raise capital first time in quarter century

As lower oil price bites purses of domestic banks, which have gobbled up government loans a lot in past years to support rising deficit and state run companies. A consortium of global banks that include Bank of Tokyo Mitsubishi, HSBC and JPMorgan. All of these three have pledged $1.3 billion to take part in the deal. Minimum requirement is to pledge $0.5 billion by any bank to participate in this $10 billion deal.

This is Saudi Arabia’s first international issuance in 25 years. It was back in 1991, when the bank issued $1 billion debt. Naturally demand is high, leading to a competitive pricing of 120 basis points over Libor benchmark, despite slump in oil price, Kingdom’s dominating export.

Due to lower oil price, and fixed exchange rate regime, Saudi Arabia has burnt almost $150 billion since 2014 and still budget deficit this year is expected between 16-20%.

While at one hand, this large scale debt issuance indicate Kingdom’s reliance on international market to alleviate pressure on domestic banks, it also indicates a political shift inside the Kingdom, in the other. New powerful. Crown prince Mohammad bin-Salman has a new vision for Saudi Arabia, which includes investing or buying up of foreign refineries, taking state owned oil producer Saudi Aramco public and diversifying into alternate energy.

It is under his demand to include Iran that led to the failure of weekend talks in Doha, Qatar.