October 22, 2019 / 10:15 AM / 3 months ago

UPDATE 2-Saudi Arabia sells $2.5 billion sukuk, gets hefty demand

(Recasts, updates with final spreads, demand)

By Davide Barbuscia

DUBAI, Oct 22 (Reuters) - Saudi Arabia sold sukuk, or Islamic bonds, worth $2.5 billion on Tuesday after receiving large demand for its first international debt sale since an assault on its oil facilities last month.

The strikes, which initially halved Saudi crude output, led to a rating downgrade by Fitch, which cited raised geopolitical risks and the possibility of further attacks.

The sukuk offer a profit rate equivalent to 127 basis points over mid-swaps, a document showed.

That is around 20 basis points below the level at which the bonds were marketed earlier on Tuesday, a sign that hefty demand allowed the kingdom to tighten the pricing.

One source close to the deal said orders for the deal had peaked to nearly $14 billion.

Saudi Arabia has borrowed extensively over the past few years to offset the impact of lower oil prices on state revenue.

This year it raised 3 billion euros ($3.3 billion) in its first bond sale in that currency and $7.5 billion in conventional bonds in January.

The new sukuk transaction would complete Riyadh's external funding requirements this year, according to a document issued by one of the banks leading the deal earlier on Tuesday.

Fund managers said the initial marketing level had put the notes at a premium of around 20 basis points over the existing curve.

The debt sale looked "cheap," said Zeina Rizk, fixed income director at Dubai-based Arqaam Capital.

Sukuk from the Gulf region are oversubscribed almost by default because the supply of sharia law-compliant assets has traditionally been below Islamic investors' demand.

Rizk added that the recent Fitch downgrade would not have any impact on investors' appetite for the notes.

JPMorgan and Standard Chartered were hired to coordinate the deal with Aljazira Capital working as joint lead bank.

Separately, the government said on Tuesday it had issued 7.265 billion riyals ($1.94 billion) in domestic sukuk.

$1 = 0.8973 euros Reporting by Davide Barbuscia Editing by David Holmes, William Maclean

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