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By Sudip Roy
LONDON, Oct 19 (IFR) - How big will Saudi go That's the multi-billion question.
The lead managers on the triple-tranche offering of five, 10 and 30-year notes have been careful not to give any details about demand since books opened at the New York open on Tuesday.
Yet market chatter suggests it will be huge. The biggest-book size for an emerging markets deal was the US$69bn generated by Argentina for its US$16.5bn comeback trade earlier this year.
Argentina appealed to a deep pool of investors in the US in particular. Saudi's appeal is, arguably, more global with Middle East and Asian accounts likely to show strong interest alongside US and European investors.
"A broad range of people will look at this. It will appeal to Asian investors, developed market investors, and anyone looking for a duration trade in hard currency," said Colm McDonagh, head of EM fixed-income at Insight Investment.
Emerging markets investors, too, are likely to put in bids although the bonds are not eligible for JP Morgan's indices as Saudi Arabia's GNI per capita is too high to qualify.
If demand is US$50bn-plus, Saudi has to weigh its options between going for size or reining in pricing.
The general consensus is that Saudi will be more size sensitive than price - with most people expecting a US$10bn-US$15bn deal - but strategies can quickly change.
One EM investor in London said a 20-30bp premium over Qatar on the five-year would be appropriate but he would want a bigger concession on the 10s and 30s. Initital price thoughts of Treasuries plus 160bp area, plus 185bp area and plus 235bp area suggest a 50bp premium to Qatar.
"Saudi is a weaker credit than Qatar but from a debt stock perspective it's better as it's starting from zero. Therefore, the short-dated bonds should trade close to Qatar and Abu Dhabi. If it was a one-year maturity you could argue it should come through Qatar.
"But over a period of time, unless there is reform or the oil price rises, this credit will deteriorate more quickly so the curve needs to be steeper."
Another issue he said was lack of transparency - the investor said Saudi hasn't even revealed what oil price it is basing its budget on, while a premium will also be needed as a debut issuer.
We shall soon see.
(Reporting by Sudip Roy; editing by Alex Chambers) ((sudip.roy@thomsonreuters.com; +44 20 7542 4617; Reuters Messaging: sudip.roy.thomsonreuters.com@reuters.net))
LONDON, Oct 19 (IFR) - How big will Saudi go That's the multi-billion question.
The lead managers on the triple-tranche offering of five, 10 and 30-year notes have been careful not to give any details about demand since books opened at the New York open on Tuesday.
Yet market chatter suggests it will be huge. The biggest-book size for an emerging markets deal was the US$69bn generated by Argentina for its US$16.5bn comeback trade earlier this year.
Argentina appealed to a deep pool of investors in the US in particular. Saudi's appeal is, arguably, more global with Middle East and Asian accounts likely to show strong interest alongside US and European investors.
"A broad range of people will look at this. It will appeal to Asian investors, developed market investors, and anyone looking for a duration trade in hard currency," said Colm McDonagh, head of EM fixed-income at Insight Investment.
Emerging markets investors, too, are likely to put in bids although the bonds are not eligible for JP Morgan's indices as Saudi Arabia's GNI per capita is too high to qualify.
If demand is US$50bn-plus, Saudi has to weigh its options between going for size or reining in pricing.
The general consensus is that Saudi will be more size sensitive than price - with most people expecting a US$10bn-US$15bn deal - but strategies can quickly change.
One EM investor in London said a 20-30bp premium over Qatar on the five-year would be appropriate but he would want a bigger concession on the 10s and 30s. Initital price thoughts of Treasuries plus 160bp area, plus 185bp area and plus 235bp area suggest a 50bp premium to Qatar.
"Saudi is a weaker credit than Qatar but from a debt stock perspective it's better as it's starting from zero. Therefore, the short-dated bonds should trade close to Qatar and Abu Dhabi. If it was a one-year maturity you could argue it should come through Qatar.
"But over a period of time, unless there is reform or the oil price rises, this credit will deteriorate more quickly so the curve needs to be steeper."
Another issue he said was lack of transparency - the investor said Saudi hasn't even revealed what oil price it is basing its budget on, while a premium will also be needed as a debut issuer.
We shall soon see.
(Reporting by Sudip Roy; editing by Alex Chambers) ((sudip.roy@thomsonreuters.com; +44 20 7542 4617; Reuters Messaging: sudip.roy.thomsonreuters.com@reuters.net))
