April 11, 2017 / 8:32 AM / 3 months ago

UPDATE 1-Saudi Arabia starts marketing dual-tranche sukuk

2 Min Read

(Adds pricing details and comments)

By Sudip Roy

LONDON, April 11 (IFR) - Saudi Arabia has begun marketing its debut sukuk about 20bp back of its conventional curve.

The sovereign has opened books on a five-year tranche at 115bp area over mid-swaps. It also marketing a 10-year tranche at plus 155bp area.

The kingdom's October 2021 conventional notes are trading at a Z-spread of 93bp, according to Tradeweb. October 2026s are at plus 136bp.

"I think there is very little premium here. Very likely to be tightened, which would bring the bond very close to the existing five-year and 10-year instruments and therefore offering little pick-up for a one-year extension over the existing 2021 and 2026 non-sukuk Eurobonds," said Koon Chow, FX and macro strategist at UBP.

Another investor, however, said the starting point was attractive. "It looks reasonably good value, probably 15-20bp cheap to the curve," he said.

A banker away from the deal suggested ahead of IPTs that a 20-25bp pick-up would be a fair starting point for the sukuk offerings. He said the final level would depend on the sovereign's size targets.

Saudi Arabia is expected to price the biggest ever sukuk, beating the US$4bn that Qatar raised in 2012.

The deal is Wednesday's business. Citi, HSBC (B&D) and JP Morgan are global coordinators. They are joined as leads by BNP Paribas, Deutsche Bank and NCB Capital.

The 144a/Reg S deal will be rated A1 by Moody's and A+ by Fitch.

Reporting by Sudip Roy, editing by Julian Baker

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