Saudi Arabia sells its first floating rate bonds

Riyadh: Saudi Arabia sold its first floating-rate bonds in a decade at the top end of price guidance, two people with knowledge of the deal said, as the kingdom seeks to bridge a budget deficit amid tightening bank liquidity.
Riyal-denominated five-year notes were priced at 25 basis points under the three-month Saudi Interbank Offered Rate, according to the people, who asked not to be identified because the information is not public yet. The Saudi Arabian Monetary Agency had indicated a range of 30 to 25 basis points under the benchmark, they said.
The seven-year notes yield 10 basis points under three-month Saibor, while the 10-year notes priced five basis points above the interbank rate, the people said. Both were also at the top end of price guidance, they said. The central bank didn’t immediately respond to calls and an e-mail sent after office hours. It is the first time that the kingdom has sold floating rate notes since October 2006, according to the central bank’s website.
The kingdom is taking unprecedented measures to shore up its public finances and reduce the economy’s reliance on oil amid the plunge in crude prices. The government has raised fuel prices and trimmed spending to narrow a deficit that may have been the widest since 1991 last year.
The Washington-based International Monetary Fund expects economic growth in Saudi Arabia of 1.2 per cent this year, the slowest pace since 2002. Saudi Arabia will probably sell about 120 billion riyals of debt in 2016 to support its finances after oil’s slump, Saudi Fransi Capital said in October.
The three-month interbank lending rate climbed 19 basis points this year to 1.74333 per cent on Monday, its highest in about seven years, as bank liquidity tightens in the world’s biggest oil exporter.
SAMA, as the central bank is known, is also easing rules on bank lending rules to boost credit growth, people with knowledge of the matter said earlier this month. Banks were told they can lend the equivalent of 90 per cent of their deposits, up from an earlier limit of 85 per cent, the people said.