Saudi Arabia raises $5.5bn in dual-tranche sukuk on heavy investor demand

Saudi Arabia has raised $5.5 billion through the sale of dual-tranche dollar-denominated sukuk, securing strong investor demand that allowed the Kingdom to significantly narrow pricing spreads.

The issuance attracted more than $17.5 billion in orders, according to IFR. The five-year tranche raised $2.25 billion, priced at 65 basis points over U.S. Treasuries, which was down from the initial guidance of 95 bps. The 10-year portion brought in $3.25 billion, priced at 75 bps over Treasuries after being marketed at 105 bps.

Proceeds will be used to address general budgetary needs, as the Kingdom faces a widening fiscal shortfall amid softer oil prices and higher-than-expected expenditures. “Although they had more than covered the budgeted deficit, mainly with local issuance, the actual deficit will be quite a bit higher, given weaker-than-anticipated oil prices and (so far at least) higher spending than budgeted, hence more issuance will be needed than in the borrowing plan,” said Justin Alexander, director at Khalij Economics and Gulf analyst at GlobalSource Partners.

The sukuk sale comes as Riyadh presses ahead with its Vision 2030 economic diversification strategy, which requires significant investment to reduce reliance on hydrocarbon revenues. The finance ministry reported public debt at 1.38 trillion Saudi riyals ($368 billion) at the end of Q2. This year’s fiscal deficit is projected at around $27 billion.

Citi, HSBC, JPMorgan and Standard Chartered acted as global coordinators and bookrunners, while ICBC and Mizuho participated as active joint lead managers.