Investors worldwide pulled out the Riyadh bond issue for an unprecedented amount. A raised money to bail out banks emptied due to lower oil.
This is a real piece of financial bravery. No country had managed such a feat. Saudi Arabia, who had never set foot on the international financial markets (at least for debt to) just will make a big splash. On Wednesday, the Islamic-oil monarchy it has ventured into Aspiring to be charmed international investors. Purpose of the operation? Raise up to 17.5 billion dollars (16 billion euros) in this first loan is the largest bond issue ever by a State.
Everywhere in Europe, Asia and in many countries of the American continent, investors rushed to take out this loan. Proof of supply and demand: total subscription requests reached 67 billion. Certainly, no one imagined that the Kingdom of Saudi Arabia may find themselves embarrassed to raise such a sum. No more than it was to bet on in a disaster scenario where a possible reluctance at the gate of the subscription inevitably leads to higher interest rates: a strategy to pet the investors within the meaning of rising interest rates, the risk that flies thereafter, the burden of debt service. But no one had bet on the extent of such success.
The backlash from the long fall of the black gold barrel during
Several major international banks worked together to place this loan. “This inaugural issue of 17.5 billion marks successful arrival of the kingdom on the capital markets,” stated Wednesday at the AFP Jean-Marc Mercier, co-director of debt capital markets division at HSBC, one of the banks that control the operation. Large, it is actually up to the changes that shook the country.
The world’s largest oil exporter, Saudi Arabia suffered the brunt of the backlash from the long fall in the barrel of black gold. After reaching a high in mid-2008 to nearly $ 140 a barrel is trading at just fifty dollars today. Certainly, the kingdom’s growth is always positive. But it is far from 4% in 2012. For most analysts are now thrown the dice: it will be only 1.5% this year and much better next year, in the best case.
Big deficit but small debt
Of course, Saudi Arabia is not on the straw. But the oil-rich Persian Gulf monarchy knows that his model could soon be out of breath. For this is the month that the column recipe from the state budget, which is 90% dependent on oil exports, is suffering from the collapse of oil prices. And when the revenue in dollars hard cash is missing, this is an economic growth plan that jammed. With bonus early austerity. Thus, the budget passed last December for 2016 projects a deficit of $ 87 billion or 19% of GDP … when France declared bad pupil of the European Union was 3.8% deficit public. For the record, this balance was positive at 8.3% in 2013. The fiscal debacle is unprecedented. What worried foreign investors? Not really, because they know that the public debt of the kingdom does not reach 20% of GDP (against almost 100% in France and almost as the average for countries in the euro area).
The country is, therefore, trying to diversify its economy and has implemented a series of reforms to replenish its coffers, which this international loan … But also the austerity measures. Water, electricity, gasoline fuel … Most of the first necessity products are heavily subsidized by the state budget. Mechanical another time, which may not be appropriate today, given that the country sees merge its oil revenues. Budget cuts could eventually reach 70 billion. Less subsidized, some products may see their prices increase sharply, with the added bonus decreased the purchasing power of the Saudis and the risk of social explosion.
In an attempt to mitigate the effects of any oil-the country, the heir vice Prince Mohammed bin Salman unveiled in April a comprehensive reform program for the development of the kingdom during the next fifteen years. Intended to diversify the Saudi economy, the plan called “Saudi Vision 2030” aims to transform the Kingdom into a world power in the field of investment and overcome his vis-a-dependence of black gold by 2020. It also plans to introduce the stock market part of the capital of its economic jewel, the state oil company Saudi Aramco … just to fund a sovereign fund will become the largest in the world. Today, it reaches out to international investors. Tomorrow, Saudi Arabia will do what it has long been. Invest and acquire stakes around the world. At least if the sale, in part, Saudi Aramco would be juicy.