Bonds issue strengthens Saudi Arabia’s Vision 2030

The drop in oil prices from around USD 110 to USD 50 per barrel between June 2014 and now, that is minus 55% in just two years and a half, led Saudi Arabia, which recently became the world’s largest oil producer again, to borrow from international investors.

With a projected public deficit of USD 87 billion in 2016, Saudi Arabia raised up to USD 17.5 billion in sovereign bonds meaning the largest ever issue from an emerging-market nation after Argentina and its USD 16.5 billion issue earlier this year. With interest rates at around 2.3% for 5-year, 3.25% for 10-year and 4.5% for 30-year notes – from 135 to 210 basis points over US Treasuries – the Saudi offer has been 3.8 times lower than world demand totaling USD 67 billion, just USD 2 billion lower than Argentina.

Such a success may incite Saudi Arabia to renew the operation in the near future and comfort the kingdom in the achievement of its Vision 2030 that aims to reduce its national wealth’s dependence on oil and to improve the management of its public spending currently impacted by austerity measures. Confidence seems to have spread across the Saudi government as well since the oil prices downturn that recovered from just USD 28 per barrel in January 2016 would be ending soon according to Saudi Minister of Energy Khalid al-Falih.

The strong demand has also confirmed the renewed appetite of investors for emerging markets.