Saudi banks get small part of $7bn bond sale amid liquidity concerns

The Saudi government sold to local banks only a small part of $7 billion bonds issued last week, three sources told Reuters, amid fears of a liquidity squeeze caused by lower oil prices.

The three-part bond issuance came after Riyadh last month raised its debt ceiling to 50% of GDP from a previous 30% to finance a widening deficit caused by lower oil prices and the economic downturn caused by the coronavirus outbreak.

A Saudi banker said his and at least two other local banks were not allocated any paper despite placing sizeable orders, adding it was probably due to government's plans to maintain ample liquidity among banks which, he said, "are overextended".

He said that could also suggest the government plans to issue local currency denominated bonds soon.

A source close to Ministry of Finance said: "Saudi banks were allocated in this transaction on the lower end of the scale. Allocation was difficult due to the very large high quality book."

The kingdom, acting through the ministry of finance, on Wednesday sold $2.5 billion in 5-1/2-year bonds, $1.5 billion in 10-1/2-year bonds and $3 billion in 40-year bonds.

"The decision was taken to maintain liquidity," said a second Saudi banker who asked not to be identified as the matter is not public.

Saudi Arabia received around $54 billion in combined orders for the bonds, a sign of strong investor appetite, but its borrowing costs have increased after a sell-off of Gulf bonds last month caused by lower crude prices and the coronavirus outbreak.

In March, the Saudi central bank said it had prepared a 50 billion riyal ($13.32 billion) package to help banks and small and medium-sized enterprises cope with the economic impact of the pandemic.

Still, some banks in the region have been limiting their lending to minimise potential losses from the crisis and an expected squeeze in dollar availability.

The three-month Saudi interbank offered rate has risen 40% since mid March, Refinitiv data showed, in a sign of tighter liquidity.