Saudi Arabia tests demand for Gulf debt with dollar bond

DUBAI: Saudi Arabia plans to issue U.S. dollar-denominated bonds on Wednesday, targeting longer dated maturities in a test of international investor demand for the Gulf region.

The debt sale is Saudi Arabia's first international bond since the murder of journalist Jamal Khashoggi, and its final size and price could give a measure of how deeply the Khashoggi affair has damaged investor sentiment towards the kingdom.

Hit by a slump in 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.

The kingdom, which plans to boost borrowing this year to back a planned increase in state spending, has started marketing bonds due in January 2029 and 2050, a document issued by one of the banks leading the deal showed on Wednesday.

The planned new issuance will be of benchmark size, meaning that each tranche will be at least $500 million, and is expected to be priced later on Wednesday.

BNP Paribas, Citi, HSBC, JPMorgan and NCB Capital have been hired to arrange the debt sale.

Saudi Arabia, rated A1 by Moody's and A+ by Fitch, started marketing the bonds due in 2029 with an initial price guidance in the area of 200 basis points over U.S. Treasuries, and bonds due in January 2050 with an initial price guidance in the area of 250 basis points over the benchmark, the document showed.

The initial guidance puts the new bonds over 40 basis points above Saudi Arabia's existing curve, which might suggest the kingdom is willing to pay up in order to attract hefty demand.

But this premium is expected to narrow as the bond is marketed to investors, and the final price will depend on the size of the debt tranches, fund managers said.

Saudi Arabia's public debt amounted to 560 billion riyals ($149 billion) or 19.1 percent of GDP in 2018. Its 2019 budget forecasts public debt will go up to 678 billion riyals or 21.7 pct of GDP this year.