Saudi Arabia targets $2 billion with new Islamic bonds

The marketing exercise comes a day after sources told Reuters that Saudi Arabia was planning to issue a new dollar sukuk shortly. (File/AFP)
Updated 12 September 2018

Saudi Arabia targets $2 billion with new Islamic bonds

  • The kingdom, acting through the ministry of finance, started marketing the notes with an initial price guidance of around 145 basis points over mid-swaps
  • The marketing exercise comes a day after sources told Reuters that Saudi Arabia was planning to issue a new dollar sukuk shortly

DUBAI: Saudi Arabia has started marketing US dollar-denominated sukuk, or Islamic bonds, with the issue expected to be around $2 billion in size, a document showed on Wednesday.
It would be the kingdom’s second international sale of sukuk after a $9 billion transaction last year. The exercise completes Saudi Arabia’s external funding requirements for 2018, according to the document.
The kingdom, acting through the ministry of finance, started marketing the notes with an initial price guidance of around 145 basis points over mid-swaps.
Citi, HSBC and JPMorgan are coordinating the transaction, and are joint lead managers together with BNP Paribas, Mizuho and Samba Capital.
The structure of the sukuk is the same one adopted for the 2017 issue, comprising a mudaraba agreement, a form of Islamic investment management partnership, plus a murabaha facility that would trade commodities with a special purpose vehicle.
The marketing exercise comes a day after sources told Reuters that Saudi Arabia was planning to issue a new dollar sukuk shortly.
The sukuk, due to settle on Sept. 19 and with a January 2029 maturity, are expected to price later on Wednesday, according to the document.
The government has raised a total of $50 billion in international notes, both Islamic and conventional, since it started tapping the international debt markets in 2016 as part of its efforts to diversify its oil-reliant economy.
In April the government sold $11 billion in conventional notes — an amount which covered the country’s hard currency funding needs for 2018, the head of the Saudi debt management office told Reuters after that bond issue.
But he said an international sukuk deal was on the cards for the second half of this year in order to maintain the country’s presence in that market and to provide supply to sharia-compliant investors.


Oil up after drone attack on Saudi field, but OPEC report caps gains

Updated 47 min 57 sec ago

Oil up after drone attack on Saudi field, but OPEC report caps gains

LONDON: Crude oil prices rose on Monday following a weekend attack on a Saudi oil facility by Yemen’s Houthi militia and as traders looked for signs of progress in US-China trade negotiations.
Price gains were, however, capped to some degree by an unusually downbeat OPEC report that stoked concerns about growth in oil demand.
Brent crude, the international benchmark for oil prices, was up 85 cents, or about 1.4%, at $59.49 a barrel at 1225 GMT.
US West Texas Intermediate (WTI) crude futures were up $1.01, or 1.8%, at $55.88 a barrel.
A drone attack by the Iran-backed Houthi militia on an oilfield in eastern Saudi Arabia on Saturday caused a fire at a gas plant, adding to Middle East tensions, but state-run Saudi Aramco said oil production was not affected.
“The oil market seems to be pricing in again a geopolitical risk premium following the weekend drone attacks on Saudi Arabia, but the premium might not sustain if it does not result in any supply disruptions,” said Giovanni Staunovo, oil analyst for UBS.
Iran-related tensions appeared to ease after Gibraltar released an Iranian tanker it seized in July, though Tehran warned the United States against any new attempt to seize the tanker in open seas.
Concerns about a recession also limited crude price gains.
Meanwhile, China’s announcement of key interest rate reforms over the weekend has fueled expectations of an imminent reduction in corporate borrowing costs in the struggling economy, boosting share prices on Monday.
US energy firms this week increased the number of oil rigs operating for the first time in seven weeks despite plans by most producers to cut spending on new drilling this year.
“WTI in recent weeks has performed relatively better than Brent... Pipeline start ups in the United States have been supportive for WTI, while the ongoing trade war has had more of an impact on Brent,” said Warren Patterson, head of commodities strategy at Dutch bank ING.
The Organization of the Petroleum Exporting Countries (OPEC) cut its forecast for global oil demand growth in 2019 by 40,000 barrels per day (bpd) to 1.10 million bpd and indicated the market would be in slight surplus in 2020.
It is rare for OPEC to give a bearish forward view on the market outlook.
“Such a bearish prognosis will heap more pressure on OPEC to take further measures to support the market,” said Stephen Brennock of oil broker PVM.