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.


South Korea downgrades Japan trade status as dispute deepens

Updated 18 September 2019

South Korea downgrades Japan trade status as dispute deepens

  • The change comes a week after South Korea initiated a complaint to the World Trade Organization
  • The new measures in effect mean it might take up to 15 days for South Korean companies to gain approvals to export sensitive materials to Japan

SEOUL, South Korea: South Korea on Wednesday dropped Japan from a list of countries receiving fast-track approvals in trade, a reaction to Tokyo’s decision to downgrade Seoul’s trade status amid a tense diplomatic dispute.
South Korea’ trade ministry said Japan’s removal from a 29-member “white list” of nations enjoying minimum trade restrictions went into effect as Seoul rearranged its export control system covering hundreds of sensitive materials that can be used for both civilian and military purposes.
The change comes a week after South Korea initiated a complaint to the World Trade Organization over a separate Japanese move to tighten export controls on key chemicals South Korean companies use to manufacture semiconductors and displays.
Seoul has accused Tokyo of weaponizing trade to retaliate against South Korean court rulings ordering Japanese companies to offer reparations to South Koreans forced into labor during World War II. Tokyo’s measures struck a nerve in South Korea, where many still resent Japan’s brutal colonial rule from 1910 to 1945.
According to South Korean trade ministry, the new measures in effect mean it might take up to 15 days for South Korean companies to gain approvals to export sensitive materials to Japan, compared to the five days or less it took under a simpler inspection process provided for favored trade partners.
Lee Ho-hyeon, a South Korean trade ministry official, said the change would affect about 100 local firms that export items such as telecommunications security equipment, semiconductor materials and chemical products to Japan. He said Seoul will work to minimize disruption to South Korean companies.
Japan for decades has enjoyed a huge trade surplus with South Korea, an economy that’s much more dependent on exports. Many major manufacturers heavily rely on parts and materials imported from Japan.
But the dispute is taking a toll. Exports to South Korea from Japan fell 9.4% last month, Japan’s Finance Ministry reported Wednesday.
The trade dispute between the neighbors erupted in July, when Japan imposed tighter export controls on three chemicals South Korean companies use to produce semiconductors and displays for smartphones and TVs, major export items for South Korea. It cited unspecified security concerns over Seoul’s export controls.
A few weeks later, Japan dropped South Korea from its own trade “white list,” triggered a full-blown diplomatic dispute that took relations between the US allies to their worst in decades.
The dispute has spilled over to security issues, with Seoul declaring it plans to terminate a bilateral military intelligence-sharing pact with Japan that symbolized the countries’ three-way security cooperation with the United States in the face of North Korea’s nuclear threat and China’s growing influence.
Following an angry reaction from Washington, Seoul later said it could reconsider its decision to end the military agreement, which remains in effect until November, if Japan relists South Korea as a favored trade partner.
Seoul announced its plans to downgrade Tokyo’s trade status in August before holding a 20-day period to gather opinions on the decision, during which the Japanese government voiced opposition to the move it described as “arbitrary and retaliatory,” Lee said.
He said Seoul needs to strengthen controls on shipments to a country that’s “hard to cooperate with” and fails to uphold “basic international principles” while managing export controls on sensitive materials.
South Korea previously divided its trade partners into two groups in managing export controls on sensitive materials. Following Wednesday’s change, South Korea now has an in-between bracket where it placed only Japan, which would mostly receive the same treatment in trade as the non-favored nations in what had been the second group.