By Davide Barbuscia
DUBAI, March 13 (Reuters) - The government of Kuwait GVD-KW has released initial price guidance for its planned debut international bond issue at the wide end of market expectations, which may indicate Kuwait is willing to pay a premium for a very large deal.
The government indicated last year that it planned to raise as much as roughly $10 billion through the issue. But as oil prices rebounded in the past few months, some investors thought Kuwait, no longer needing the cash as urgently, might limit the size of the bond in order to obtain a cheap interest rate.
Kuwait's initial price guidance on Monday, however, suggests the government may plan a sizeable issue. Guidance for its planned five-year tranche, which was set in the 100 basis points over U.S Treasuries area, would put the paper 55 bps above the yield of Abu Dhabi's five-year 2021 bond in the secondary market .
Kuwait's planned 10-year tranche, marketed in the 120 bps over Treasuries area, would be 45 bps above Abu Dhabi's 10-year notes maturing in 2026.
"It's definitely on the higher end of expectations, but you have to expect the standard tightening of at least 20 bps" from the initial price thoughts, said a fixed income portfolio manager.
Even factoring in a 20-25 bps tightening from initial guidance, the bond would still offer a new issue premium of around 20-30 bps over Abu Dhabi's five- and 10-year paper.
Abu Dhabi is generally seen as the gold-standard credit in the Gulf region, and Kuwait marketed itself "as the new Abu Dhabi" when it met fixed income investors in London and the United States last week, investors said.
Kuwait's senior unsecured 144 A/Reg S bond is expected to price later on Monday.
Citi, Deutsche Bank, HSBC, JP Morgan, NBK Capital and Standard Chartered Bank are the bookrunners. (Editing by Andrew Torchia)