Saudi may issue bonds more frequently as investor base grows

Reuters

By Andrew Torchia

RIYADH, Oct 26 (Reuters) - Saudi Arabia's government is considering whether to issue international bonds more frequently in 2018 while reducing the size of each individual issue, the president of the kingdom's Debt Management Office said on Thursday.

Fahad al-Saif said any change would be in response to feedback from investors. Seeking to cover a big budget deficit caused by low oil prices, Riyadh made its first global issue last October, a $17.5 billion sale that was the largest emerging market issue ever.

"We are studying whether to continue with the same pattern as this year or to become a more frequent issuer," he said, stressing that the total volume of issuance would not rise as a result of any increase in frequency.

Saif, a veteran banker who has held senior positions at Saudi British Bank and HSBC Saudi Arabia, said his office aimed to hold more frequent non-deal roadshows for investors in Saudi debt in the United States, Europe and Asia.

April's sukuk issue used a hybrid mudaraba/murabaha structure, which some foreign investors described as complex. Saif said he would structure future sukuk issues in response to investor feedback and legal advice, but indicated he felt no strong pressure to change the format.

"We received feedback on the issue and the results were skewed towards the positive -- investors were fine with the structure. Nobody has asked us to alter or change it."

The sukuk came in tranches of five and 10 years. Saif said he did not rule out lengthening sukuk maturities in future to as long as 30 years, the maximum length of Riyadh's conventional bonds, but he would first need to be sure this would not distort the yield curve.

In an unusual move, Saudi Arabia itself purchased and retained 5 percent of the April sukuk issue, in order to avoid any risk of contravening part of the U.S. Dodd-Frank Act, which seeks to align the interests of issuers of asset-backed securities with those of investors.

In the prospectus, Riyadh said it did not consider the sukuk a securitisation, but that the issuance "may be captured, as a technical matter, by the language of the U.S risk retention rules".

Saif said on Thursday that his office would decide on a case-by-case basis, after seeking legal and regulatory advice, whether it was necessary to retain part of future international sukuk issues.

Saudi Arabia is balancing its international debt issues with a domestic programme; for the last four months, the government has been holding monthly sales of riyal-denominated sukuk.

Currently, about 65 percent of its public debt is local and the rest foreign, a ratio which the government is keen to maintain in future, plus or minus 10 percent, Saif said.

Efforts are underway to stimulate secondary market trade in riyal government bonds, and authorities plan to bring institutional investors such as asset managers and insurers into the primary market, now dominated by a group of qualified banks.

An email system for buyers to indicate their preferences in the primary market may be upgraded to an electronic bidding system, Saif said.

In response to inquiries by investors in the Gulf region, Riyadh plans to open riyal-denominated bond issues to regional institutions by the end of 2018, after the market has become more liquid, he said.

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