Saudi Arabia brings historic deal; EM gets lift from China data, oil; Polyus Gold eyes notes

By Christine Van Dusen

Atlanta, Oct. 19 – Saudi Arabia brought its long-awaited, three-tranche, $17.5 billion megadeal – the largest ever from an emerging markets issuer – on Wednesday amid higher oil prices and supportive data from China that gave a boost to bonds from Central and Emerging Europe, the Middle East and Asia.

“Historic day,” a London-based trader said. “We’ve certainly never seen $17.5 billion-worth of bonds added.”

The notes – Saudi Arabia’s first-ever international bonds – were issued as a means to address a budget shortfall for the sovereign, which relies on oil for more than half of its government revenue and has been suffering amid oil-price volatility.

In this Rule 144A and Regulation S transaction, Saudi Arabia priced three tranches due 2021, 2026 and 2046 via Citigroup, HSBC, JPMorgan, Bank of China, BNP Paribas, Deutsche Bank, Goldman Sachs, MUFG Securities, Morgan Stanley and NCB Capital.

The sovereign’s new $5.5 billion 2 3/8% notes due in 2021 priced at 99.007 to yield 2.588%, or Treasuries plus 135 basis points, following talk in the 160 bps area.

The $5.5 billion 3¼% notes due in 2026 priced at 98.679 to yield 3.407%, or Treasuries plus 165 bps, following talk in the 185 bps area.

And the $6.5 billion 4½% notes due in 2046 priced at 98.015 to yield 4.623%, or Treasuries plus 210 bps, following talk in the Treasuries plus 235 bps area.

The proceeds will be used for general domestic budgetary purposes, as the oil-focused country grapples with a budget shortfall as a result of price weakness.

Prior to issuing the new bonds, on Wednesday morning they traded off the highs in the gray market, the trader said. “But I’mm impressed with how well they are holding in,” he said.

Middle Eastern bonds rally

Meanwhile, bonds from Oman and Bahrain rallied as value-hunters picked out bonds that looked cheap to the expected pricing and size of Saudi Arabia.

“Similar story with Saudi Electricity Co., where the 2043s and 2044s close out 30 bps and 40 bps tighter on the week, having lagged on the Saudi pricing, size and timing uncertainty,” he said. “Once that layer of risk was removed, shorts closed and the market chased the bonds in some style.”

Turk Eximbank trades

In other trading, the new issue of notes from Export Credit Bank of Turkey SA (Turk Eximbank) – $500 million 5 3/8% notes due 2023 that priced Tuesday at 99.816 to yield mid-swaps plus 400 bps – saw some activity in trading on Wednesday.

The notes were spotted during the session at 100.05 bid, 100.15 offered, a trader said.

Citigroup, HSBC, ING, Mizuho Securities, MUFG and Standard Chartered Bank were the bookrunners for the Rule 144A and Regulation S deal.

Proceeds will be used for general corporate purposes.

Polyus Gold seeks issuance

In other news, Polyus Gold International Ltd. is planning to issue dollar-denominated notes due in five years, according to a company announcement.

JPMorgan, Renaissance Capital, Sberbank and VTB Capital are the bookrunners for the Rule 144A and Regulation S deal.

London-based Polyus is a gold producer with mines in Russia and Kazakhstan.

“The pipeline remains extensive,” a trader said.

Poland draws orders

Poland’s two-tranche issue of €1.25 billion notes due 2028 and 2046 that priced on Tuesday saw most of the bonds go to investors from France and Italy, according to an announcement from the sovereign.

The deal included €750 million 1% notes due 2028 that priced at a yield of 1.058%, or mid-swaps plus 28 bps. Investors in France picked up 28%, Italy 21%, Germany 13%, Poland 8%, Bulgaria 7%, Switzerland 6%, Benelux 5%, United Kingdom 4%, other Central and Emerging Europe 3%, Europe 3% and the rest of the world 2%.

The €500 million 2% notes due 2046 priced at a yield of 2.122%, or mid-swaps plus 120 bps. Investors in Germany picked up 41%, Italy 24%, UK 11%, Switzerland 10%, Poland 5%, other Central and emerging Europe 3%, other Europe 4% and the rest of the world 2%.

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