Saudi Arabia’s sovereign wealth fund is set to sell international bonds to help finance its investment plans, adding to a recent wave of Saudi issuance from entities including local banks and the sovereign.
The Public Investment Fund is offering 10-year dollar bonds at initial price talk of around 120 basis points over US Treasuries. The institution previously sold $4 billion of debt in January, and signed a $7 billion Islamic loan with 20 banks around the same time.
It also recently introduced a commercial paper program and has been raising cash by selling stakes in portfolio firms. The PIF is also looking to list some of its companies as it seeks to drive spending in the kingdom amid low oil prices that are complicating efforts to diversify the economy.
The PIF is the main entity tasked with executing Crown Prince Mohammed bin Salman’s Vision 2030 agenda to shift away from oil and into a more diverse range of industries. The International Monetary Fund said in August that the PIF is expected to continue spending at least $40 billion a year on domestic investment, which “is going to help keep growth positive and robust compared to what’s happening elsewhere.”
Monday’s offering follows $20 billion in sales of dollar- and euro-denominated debt from the Saudi government this year — the most among emerging markets, according to data compiled by Bloomberg. The latest move also adds to a pick-up in syndicated loan activity and a fresh wave of local bank issuance.
Countries and companies in the developing world have been rushing to sell bonds at the fastest clip in at least a decade, taking advantage of high appetite for emerging-market assets to issue debt amid what investors say could be sharper swings ahead in global debt markets. Saudi Arabia so far has borrowed the most among all emerging-market countries.
Financing needs for the world’s biggest oil exporter are increasingly pressing, with Brent prices down more than 10% this year to around $66 a barrel as of Monday.
“Soft US labor-market data and the greater expectations of Federal Reserve rate cuts make it a favorable time for the PIF to return to the international debt market,” said Monica Malik, chief economist at Abu Dhabi Commercial Bank.
There was strong international demand for last week’s $5.5 billion sovereign issuance, with investors placing about $17.5 billion of orders. That will likely also be the case for the PIF, and overseas borrowing will remain “important” for the kingdom’s transformation plans, according to Malik. Order books for the PIF sale on Monday were in excess of $7 billion.
“Greater external borrowing will help to reduce the further tightening liquidity pressures on Saudi banks,” Malik said.
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