Saudi Arabia's National Debt Management Centre has completed the issuance of $12 billion worth of international bonds as the kingdom seeks to bridge the widening budget deficit.
The triple-tranche bond offering was oversubscribed 2.5 times as the order book reached $30 billion, NDMC said on Tuesday.
This transaction is part of the strategy to diversify the investors' base and meet the kingdom's financing needs from international debt capital markets efficiently and effectively, it said.
The value of the first tranche was $3.25 billion for a six-year bond maturing in 2030. The second tranche totalled $4 billion for a 10-year bond maturing in 2034 and the third totalled $4.75 billion for a 30-year bond maturing in 2054.
The bond issuance is the first this year under the kingdom’s global medium-term note programme.
“The bid-to-cover ratio reflects the strong demand of the kingdom's issuances, confirming the investors' confidence in the strength of the kingdom's economy and its investment opportunities future,” the NDMC said.
Last month, Saudi Arabia approved its general budget for the 2024 fiscal year, which forecast a deficit of 79 billion Saudi riyals ($21.1 billion), accounting for about 1.9 per cent of the country's gross domestic product.
The Arab world’s largest economy estimated total revenue at 1.17 trillion riyals next year, while total expenditure is projected at 1.25 trillion riyals, the kingdom’s Ministry of Finance said at the time.
The kingdom reported a budget deficit of 2.91 billion riyals for the first quarter of last year.
In October, Saudi Arabia revised its growth forecast for 2023 and expects a budget deficit this year as it boosts spending.
The kingdom's budget deficit widened in the third quarter by about seven times on a quarterly basis as oil revenue fell amid production cuts.
The total budget deficit in three months to the end of September reached 35.8 billion riyals, compared with 5.2 billion riyals in the second quarter, the Ministry of Finance said in a budget update last month.
The 2024 national budget aims to boost growth in the non-oil economy by increasing spending and investment in infrastructure, local industry and services, Saudi Arabia's Crown Prince Mohammed bin Salman said, as reported by SPA.
He said the government is also working to boost its reserves and maintain a sustainable level of public debt.
The budget’s higher spending for next year aims to boost growth, Prince Mohammed said.
The kingdom estimates financing needs of about 86 billion riyals in 2024 under a borrowing plan approved by Finance Minister Mohammed Al Jadaan, the NDMC said earlier this month.
The government will “continue domestic and international fiscal operations to bridge the expected 2024 deficit and repay debt due during 2024 and in the medium term”, Mr Al Jadaan said in December.
“The government also aims to take advantage of available market opportunities to provide additional financing to repay debt obligations in the coming years.”
Analysts expect larger deficits than official estimates.
“We expect Saudi Arabia to run a deficit of 4.3 per cent of GDP this year, up from 1.9 per cent in 2023, as ambitious development plans will require continued investment spending,” Khatija Haque, head of research and chief economist of Emirates NBD, wrote in a recent note.
Saudi Arabia is developing a number of new projects as it focuses on diversifying its economy away from oil.
The projects span sectors such as property, tourism, entertainment and infrastructure, warranting a greater need for funding.
On top of the list is Neom, the vast $500 billion city that is the kingdom's new destination on the Red Sea. Spanning 26,000 square kilometres, it will be more than twice the size of Lebanon.
The kingdom's new bond issuance comes at a time when many borrowers are seeking to lock in lower funding costs following a steep drop in US Treasury yields since October.
While the Federal Reserve is widely expected to start cutting interest rates this year, pushing down yields even further, that is not expected before the second half of this year.
Saudi Arabia’s economy, which grew by 8.7 per cent last year, the highest annual growth rate among the world's 20 biggest economies, is expected to expand by 0.8 per cent in 2023, according to the International Monetary Fund.
The kingdom, which benefitted from the rally in crude prices last year amid the Ukraine war, has cut oil output in an attempt to stabilise the market.
The country's economy contracted by 4.5 per cent annually in the third quarter, dragged down by oil production caps.
However, the non-oil economy expanded by 3.9 per cent in the three months to the end of September, according to the General Authority for Statistics data.
Saudi Arabia's non-oil economy expanded in December as new orders rose at their fastest pace in six months, amid the kingdom's continued diversification efforts.
The headline Riyad Bank purchasing managers' index reading stood at 57.5 for the second month running in December, remaining well above the 50-point neutral mark that separates expansion from contraction.
The IMF expects the kingdom's non-oil economic growth to remain close to 5 per cent in 2023, spurred by strong domestic demand.
Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
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3 Sebastian Vettel (Ferrari)
4 Kimi Raikkonen (Ferrari)
5 Daniel Ricciardo (Red Bull)
6 Max Verstappen (Red Bull)
7 Romain Grosjean (Haas)
8 Charles Leclerc (Sauber)
9 Esteban Ocon (Force India)
10 Nico Hulkenberg (Renault)
11 Carlos Sainz (Renault)
12 Marcus Ericsson (Sauber)
13 Kevin Magnussen (Haas)
14 Sergio Perez (Force India)
15 Fernando Alonso (McLaren)
16 Brendon Hartley (Toro Rosso)
17 Pierre Gasly (Toro Rosso)
18 Stoffe Vandoorne (McLaren)
19 Sergey Sirotkin (Williams)
20 Lance Stroll (Williams)
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Stage 4
1. Dylan Groenewegen (NED) Jumbo-Visma 04:16:13
2. Gaviria (COL) UAE Team Emirates
3. Pascal Ackermann (GER) Bora-Hansgrohe
4. Sam Bennett (IRL) Deceuninck-QuickStep
5. Caleb Ewan (AUS) Lotto Soudal
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Power: Combined output 920hp
Torque: 730Nm at 4,000-7,000rpm
Transmission: 8-speed dual-clutch automatic
Fuel consumption: 11.2L/100km
On sale: Now, deliveries expected later in 2025
Price: expected to start at Dh1,432,000
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2. Alphonce Simbu(TAN) 2:07:50
3. Reuben Kipyego(KEN) 2:08:25
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