by Alaa Shahine , Archana Narayanan , and Arif Sharif
Kuwait will be a “prudent” borrower after raising $8 billion in its first international bond sale at a lower price than other oil-rich Gulf Arab states seeking to plug budget deficits, a top government official said.
The OPEC member sold $3.5 billion in five-year notes at 75 basis points over similar-maturity U.S. Treasuries and $4.5 billion in 10-year bonds at a 100 basis-point spread, according to a person familiar with the deal who spoke on condition of anonymity. The offer attracted about $29 billion in bids, the person said, allowing Kuwait to sell at a lower rate than Qatar, Abu Dhabi and Saudi Arabia offered last year, data compiled by Bloomberg show.
“We had strong demand from the U.S., strong demand from MENA, strong demand from Europe,” deputy Prime Minister Anas al-Saleh said in a phone interview late on Monday from London. “We will continue to be a rational, prudent borrower, making sure that we maintain our current credit rating and the successful secondary performance of the existing issue.”
The deal is the third-largest from the Gulf region, following Saudi Arabia’s record $17.5 billion and Qatar’s $9 billion sales last year. Gulf governments raised more than $48 billion in bond sales last year — the most since at least 2007. Oman, the largest Arab oil producer that isn’t a member of OPEC, sold $5 billion from a three-part bond sale earlier this month that included five-, 10- and 30-year maturities.
Kuwait, OPEC’s fifth-largest producer, is rated AA at S&P Global Ratings, the third-highest investment grade. Citigroup Inc., HSBC Holdings Plc, JPMorgan Chase & Co., Deutsche Bank AG, NBK Capital and Standard Chartered Plc managed the sale.
Kuwait expects its budget deficit to narrow to 7.9 billion dinars ($25.9 billion) in the fiscal year that starts in April from 9.7 billion dinars in the previous 12 months, according to figures released in January. That includes money set aside for the country’s Future Generations Fund.
Al-Saleh, who is also the finance minister and chairman of the country’s sovereign wealth fund, said the bond sale “covers the bulk of our funding needs from the international market in 2017.”
By completing its sale on Monday, Kuwait avoided any possible increase in international borrowing costs if the U.S. Federal Reserve raises interest rates when it meets this week. Policy makers are expected to raise the benchmark interest rate by 25 basis points.
The issuance “has a very low spread but the diversification effect is good,” said Lutz Roehmeyer, the director of fund management at Landesbank Berlin Investment GmbH, who bid for the bond. The “huge issue size” adds to the bond’s appeal to investors by making it more liquid and easier to trade after the issue prices, Roehmeyer said.
Kuwait’s benchmark stock index climbed 0.6 percent at 10:21 a.m. on Tuesday.