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4.5 times Oversubscribed $3bn Euro bond raised by Saudi reflects strong confidence in Kingdom

In its foray in the euro debt market, the first by any Gulf government, Saudi Arabia has raised 3 billion euros from over 14.5 billion worth of orders for its first bond denominated in Euros, as the kingdom taps new financing sources to cover its budgetary needs in an era of lower oil prices, according to Reuters.

With this deal, the Saudis have sold over $60 billion in international bonds since their debut as a global borrower in late 2016.

The kingdom is looking to issue bonds in tranches of eight and 20 years

The Saudi bonds are split into a 1 billion-euro eight-year tranche and a 2 billion-euro 20-year tranche, a document issued by one of the banks leading the deal showed.

The yield in euro terms was lower than rates offered by Saudi's dollar debt. Spreads on the 8-year bond ended up offering 80 basis points (bps) over mid-swaps. The 20-year bonds offered 140 bps over the same benchmark.

Relatively low euro rates come courtesy of the European Central Bank’s dovish tilt at a time when negative-yielding debt reached a record. Demand for returns among European investors has helped fuel sales by sovereigns across developing nations, boosting issuance so far this year to an all-time high of 31 billion euros, including the Saudi deal, according to Bloomberg League Tables.

Saudi Arabia’s $5 billion of notes maturing in March 2028 yield 3.14%.

Saudi Arabia's budget deficit this year is expected to reach 7% of GDP, the International Monetary Fund predicted, above the government's projection of 4.2% of GDP.

Minister of Finance Muhammad Al-Jadaan said on Wednesday that the successful offering of the Kingdom’s inaugural euro-denominated international bond illustrates the Kingdom’s position as a leader in the region as well as an important player in international debt capital markets, according to the Saudi Gazette.

“This will help achieve one of the strategic objectives of the ministry in terms of the optimum use of state assets and innovative financing that contributes to the sustainability of the Kingdom’s access to various international markets at fair pricing,” he said.

 Al-Jadaan’s remarks came after the ministry’s announcement on Wednesday about the successful completion of the first offering of international bond denominated in the euro currency with a total issue of €3 billion (SR 12.7 billion) divided into two tranches.

The order book peaked at 13.5 billion euros, which was 4.5 times oversubscribed.

“This highlights the strong demand of both existing and new investors in the European Union region, showing their high level of confidence in Saudi government securities.