The first international bond issue ever of Saudi Arabia was a resounding success. With revenue of $ 17.5 billion, the loan for the time being number one in the year of the emerging market-mammoth bonds.
With $ 67 billion in orders, the issue was oversubscribed nearly four times, as the Financial Times report . That enabled the Saudis to increase envisaged for fifteen to 17.5 billion, and to reduce the price to 3.41 percent for the ten-year variant – forty basis points more than the previously issued ten-year Qatar, ten basis points less than previously expected.
Thus, the Saudis provisional leader in the year of the first mammoth bonds issued by emerging economies. Qatar pulled out in May nine billion dollars from the market, and Argentina a month earlier 16.5 billion. The latter success was the most spectacular.
Saudis benefit from global appetite for yield
Argentina is worldwide one of the least reliable state debtors. The country regularly slips off into deep recessions and hyperinflation, and then simply keep on paying interest and repayments on its loans. Apply a half years ago, it reached an agreement with its creditors, after years of difficult negotiations.
Despite this charged past the Argentines pay only 5 percent interest on their latest ten-year, and 3.875 percent on five-year loan. That shows how big the global hunger for yield (yield) for investors. Pension funds, insurers and asset managers usually have to invest a certain percentage of their portfolio in government bonds.
But the massive purchase programs by central banks in the US, Japan and Europe, known as quantitative easing , such loans made scarce, and their yields pushed to new lows. Many of the most sought after loans, such as German bunds and US Treasuries, currently have even negative yields.
Three to five percent return is opportunity for investors
In such an environment are loans 3.41 or 5 percent came out chances, even though the debtor unloved or unknown. Saudi Arabia is a very rich country with almost no debt, but the source of that fortune is also increasingly becoming a problem to be. Our dependence on finite and highly polluting fossil fuels oil and gas makes for climate change and thus threatens life on earth.
During the roadshow which the Saudis their loan to the husband spent by international investors they made a lot of work from their efforts to modernize the country’s economy, away from the one-sided orientation on oil. In response to the oil price, which in two years plummeted from a hundred dollars to thirty dollars per barrel early this year, they cut drastically in the state expenditure, they are going to privatize their state oil company Saudi Aramco part and they promise more transparency.
Yet many analysts explain the popularity of the new mammoth bonds of emerging economies, especially from the hunger for yield, and less from fundamental considerations such as economic reform that promises Saudi Arabia. Some renowned institutes also consciously decided not to subscribe to the Saudi loan.
“Other countries in the region offer more value for the money”
“He’s a little weird between developed and emerging markets”, such was Max Wolman Aberdeen Asset Management. “Yields were not particularly generous.” Set against German and US government bonds is 3.41 percent genrous. But it’s still a lot less than the average yield of all emerging market government bonds: 5.2 percent. “Other countries in the region offer better value for money,” said Claudia Calich M & G.
Governments and companies in emerging economies have to pay higher interest rates on their bonds because creditors view them as riskier borrowers. The shorter the term, the lower the risk. Against this background it was striking that the Saudis have sold more than thirty year bonds five- and ten-year: 6.5 billion of the total.
Because Saudi Arabia may be filthy rich and virtually debt-free, the country is in the most politically volatile region on earth. It is questionable whether the transition path is removed from the oil, and that the predominantly young Saudi population is immune to the many revolutions and wars in the neighboring countries.
But long-term loans now make once the most. Apparently currently weighs most heavily on bond investors.