Saudi Arabia passes bond test as investors look past Khashoggi

Saudi Arabia started marketing Wednesday’s bonds at around 40 basis points above its existing curve. (File/AFP)
Updated 10 January 2019
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Saudi Arabia passes bond test as investors look past Khashoggi

  • Seeking to raise $7.5 billion, Riyadh attracted demand that topped $27 billion for the dual-tranche paper maturing in 2029 and 2050
  • Saudi Arabia started marketing Wednesday’s bonds at around 40 basis points above its existing curve

DUBAI: Saudi Arabia drew a strong response on Wednesday in its first test of international bond market sentiment since coming under intense scrutiny in October from foreign governments and investors over the murder of journalist Jamal Khashoggi.
Seeking to raise $7.5 billion, Riyadh attracted demand that topped $27 billion for the dual-tranche paper maturing in 2029 and 2050, according to a document issued by one of the banks leading the deal and seen by Reuters.
The sale coincides with improved conditions across emerging markets, with yields compressing over the past few weeks, and Timothy Ash, senior emerging markets strategist at Bluebay Asset Management, called it “opportunistic.”
A second analyst said the impact of the Khashoggi case was fading.
The ministry of finance confirmed in a statement on Thursday the completion of the $7.5 billion bond sale. “The issuance received significant interest from international investors, with the orderbook peaking at $27.5 billion,” it said.
It was not yet clear where most of the demand for the paper came from.
Hit by slumping oil prices, Saudi Arabia has become one of the biggest issuers across emerging markets, having sold $52 billion in international bonds since its debut in 2016. It plans to boost borrowing this year, along with state spending.
But its stock among investors took a hit after Khashoggi’s killing, for which a definitive explanation has yet to emerge, and as the humanitarian consequences of its war in Yemen have become clearer.
’Timing is great’
Saudi Arabia started marketing Wednesday’s bonds at around 40 basis points above its existing curve, according to another document — suggesting the kingdom was willing to pay up in order to attract hefty demand.
Spreads were later tightened by 25 basis points on the 2029 tranche, the size of which has been set at $4 billion, and by 20 basis points on the 2050 tranche, set at $3.5 billion.
“Timing-wise this is great, because risky assets are in vogue – 2019 went off like crazy and investors want to put their money to work,” said Philipp Good, chief executive and head of portfolio management at Fisch Asset Management.
Sergey Dergachev, functional head of EM corporate debt and senior portfolio manager at Germany-based Union Investment, said he thought investors had relegated the Khashoggi case to the background, “especially since some significant government reshuffling two weeks ago.”
The sale — arranged by BNP Paribas, Citi, HSBC, JPMorgan and NCB Capital — was also the first this year by a Gulf borrower, and comes as crude prices recover.
“When you issue first or among first in early January it is both good test for market perception for your credit story and investors have cash balances to be put to work,” Dergachev added.
Saudi’s public debt amounted to 560 billion riyals ($149.29 billion) or 19.1 percent of GDP in 2018, and the budget forecasts a rise to 678 billion riyals or 21.7 pct of GDP this year.
The country is rated A1 by Moody’s and A+ by Fitch.


Selling sketches and clothes, Libyan women set up businesses against the odds

Updated 7 min 9 sec ago
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Selling sketches and clothes, Libyan women set up businesses against the odds

  • Libya has only a tiny private sector and the economy is dominated by the state
  • Cumulative inflation over the last four years has seen real incomes lose more than half of their purchasing power

TRIPOLI: When inflation began eating into her state-paid salary Libyan architect and assistant professor Seham Saleh started selling drawings over the Internet to help pay the bills.
She joins a growing number of Libyan women launching start-ups in the conservative Arab country, where many still think a woman’s place is in the home but where the strains on personal and family income following years’ of political chaos have forced women to look for more work.
Libya has only a tiny private sector, which means there is a market for locally-produced goods. The economy is dominated by the state, which employs most adults under a structure set up by Muammar Qaddafi, who was toppled in 2011.
Men are the traditional breadwinners, although around 30 percent of women were in the labor force as of 2015, according to a UN report.
“I cannot live on my assistant professor salary of 1,000 dinars ($256) even if it is paid out,” said Saleh. She has been selling drawings of people in Libyan dress or book marks she created on a computer.
“Thank God... people wanted to buy the products,” she said. She also does freelance work as an architect.
Once one of the richest countries in the region, the chaos and civil war that ensued after the fall of Qaddafi has seen Libya’s living standards erode. Little is now produced in Libya other than oil, even milk is imported from Europe.
Cumulative inflation over the last four years has seen real incomes lose more than half of their purchasing power, and the government effectively devalued the dinar last September.
A cash crisis means public servants often do not get their salaries paid out in full. Lenders have no cash deposits as the rich prefer to hold their cash themselves, rather than deposit it in a bank.
Women rarely had jobs outside of sectors such as teaching, although the need for more family income has changed the situation, said Jasmin Khoja, head of a women’s business support venture.
Her organization, the Jusoor center for studies and development, has trained some 33 would-be female entrepreneurs, offers legal advice and office space as women often can’t afford their own.
While Seham’s “Naksha” art business is in its early stages, others such as Najwa Shoukri’s start-up are growing fast. She started designing clothes from home in 2016, and selling them online.
Now, together with five other women, she has a workshop selling 50 pieces a month and plans to open a shop next year on Jaraba Street, the main fashion shopping avenue in Tripoli.
To make the shop a success her output would have to rise to 150 pieces a month. Her brother and family have contributed to investments worth 10,000 dinars.
The biggest challenges for start-ups are legal hurdles and the lack of electronic payment systems.
Some Libyan commercial laws go back to the 1960s and are aimed at big corporations such as oil firms, not start-ups. Under these regulations firms need to deposit thousands of dinars.
“Banks do not give loans, which stops projects and makes them unable to grow or employ other women and young people,” Khoja said.
Undeterred, Mayaz Elahshmi started a business last week training women to fix computers and smartphones.
“There is big demand as many women are reluctant to go to a phone shop where men work, as they have personal files on their phones.”
Six people came to her first training session, each paying 30 dinars.