Saudis cease local issues after $17.5 billion in international bonds

Saudi Arabia, a country under some financial pressure, is now poised to suspend its usual practice of issuing local currency bonds.

A press release on Oct. 27 showed the Saudi government will suspend normal borrowing activities because of a record-setting $17.5 billion bond issue just weeks ago.
 
The unprecedented international bond issue was in the press last week, as analysts noted the country taking advantage of an A1 rating from Moody's, and acting quickly to secure the funds from the international market at a time when Saudi officials see it as imperative to provide the same levels of support for their citizens after slumping oil prices.
 
“Boom -- they went full-scale,” GMSA Investments Ltd. Trader Angelo Rossetto said in a Bloomberg News piece on the bond issue.
 
There's no word on when local bond issues will resume.
 
For more insight on how this type of international burrowing can work, Gulf News Journal spoke with Marvin Goodfriend Thursday. Goodfriend is a professor of economics at the Carnegie Mellon Tepper School of Business.
 
“(The Saudis) are not in a position to cut back the spending,” Goodfriend said, describing some of the pressures on Saudi Arabia right now. “They want to provide a level of sustenance for their people that can no longer be funded out of oil revenues.”
 
With this kind of borrowing, Goodfriend said, the Saudis are essentially trading on the future values of commodities as they find ways to do more long-term financial planning. It's a long-term strategy, he said, that syncs with the consensus that oil prices are not likely to rebound anytime soon.
 
Goodfriend said large bond issues like the one Saudi Arabia accomplished on the international markets provide stability.
 
Responding to a question about whether it's better to borrow from other countries, or do local bond issues, Goodfriend said there are a number of positives to working in the international bond market.
 
He described countries like Germany and China as relatively willing and established buyers, countries that are saving and looking for a place to put their money.

In addition, he said, there is the idea that by securing bond purchases from other countries around the world, a country issuing bonds can actually build support from a greater network of allies: since the bond buyers have an incentive to make sure they get their money, they may be more likely to take actions to ensure that country’s long-term solvency. It's an idea, he said, that goes back to Alexander Hamilton and the financial relationship between the original 13 colonies and powerful British backers.
 
“You might elicit some support from your adversaries,” Goodfriend said.
 
However, borrowing also means taking on the responsibility of making good on the money.
 
With an apparent appetite for debt, the Saudi Arabian government is making big plays, in finance, related to sustainable energy projects, and in its efforts to revolutionize an economy that had always relied on big oil.

Now, with a lot of international financing, the Saudi Arabian leadership seems ready to move forward in keeping the national economy afloat and moving from traditional energy commodities to the next big thing.