Saudi Arabia enters the bond market, seeking $17.5 billion

RIYADH, Saudi Arabia, Oct. 19 (UPI) -- Saudi Arabia plans its first international bond sale, intending to raise $17.5 billion, sources close to the offering said.

The kingdom could finalize the expected return on the bonds by Wednesday, seeking to shore up government finances hurt by the decline in oil prices. It will sell dollar-denominated bonds due in five, 10 and 30 years, each with a return higher than current U.S. Treasury bonds. Sources said the plan calls for raising $5.5 billion in each of the lower-maturity bonds and $6.5 billion in the 30-year debt, Bloomberg News reported Wednesday.

The sale, Saudi Arabia's first entry into the international bond market, will be the biggest bond sale by an emerging economy, larger than Argentina's $16.5 billion sale in April. It demonstrates the current strain on the Saudi economy; Saudi Arabia had a $97 billion budget deficit in 2015, equal to 15 percent of its gross domestic product. The government cut wages, subsidies and spending as a result, and developed a plan to diversify its economy away from oil. There have been mass job losses in the construction industry, and the country's middle class is receiving fewer state handouts. The International Monetary Fund predicted the country's GDP growth will fall to 1.2 percent this year, compared to 3.5 percent in 2015.

Persian Gulf countries are increasingly issuing bonds to raise cash to replace lost oil revenue. Qatar, Bahrain, Oman and Abu Dhabi have sought global financing in 2016. Standard & Poor's estimated that Saudi Arabia, Oman, Qatar, Bahrain, Kuwait and the United Arab Emirates collectively require $560 billion in funding, from 2015 to 2019, to cover deficits caused by falling oil prices, the Wall Street Journal noted Wednesday.