Saudi Arabia sold some $26 billion in domestic bonds in 2015 and is expected to sell another $32 billion worth in 2016 as the kingdom tries to plug the leak in its revenues caused by the low oil prices of the past year and a half. But that could be just the beginning.
The Saudis may be preparing to issue their first-ever international sovereign bond, but there’s a catch. According to a report at Bloomberg News, sources say that banks wanting to get in on the offering are also going to have to be willing to participate in a loan to the country that could be as large as $10 billion.
The country’s credit rating already has been downgraded at Standard & Poor’s, and last Friday Moody’s put the kingdom’s Aa3 rating on review for possible downgrade. In 2015, hydrocarbons accounted for about 84% of exports, about 40% of gross domestic product and around 62% of consolidated government revenues. The country’s economic output could fall by nearly 18% again in 2016.
In its rating review, Moody’s said that a downgrade would occur if the reviewers “conclude that the government’s plans are unlikely to be adequate to sustain Saudi Arabia’s economic or government balance sheet strength.” The firm continued:
Signs of an emerging fiscal or balance-of-payments crisis would also exert downward pressure on the rating. Those signs might include a further sustained fall in the price of oil, sustained capital outflows and pressure on the exchange rate and foreign-currency assets, a marked worsening in the fiscal balance for which there was no clear reversal, or further stress in/support for the banking system. Deterioration in the domestic or regional political environment, resulting in disruptions to oil production, would also be highly credit negative.
Saudi Arabia already has dipped into its sovereign wealth fund. The fund held about $746 billion in August of 2014 and dipped to $616 billion by the end of 2015 as the government sold off assets to raise cash.
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