MANAMA, (Reuters) – Saudi Basic Industries Corp (SABIC) priced Islamic bonds worth up to $1.33 billion at 48 basis points above the three-month Saudi Interbank Offered Rate (SIBOR), as demand far outstripped supply.
“The book is strong, demand is way above the maximum limit set for the sale,” a person with direct knowledge of the deal said on Tuesday.
The world’s biggest chemicals firm by market value had previously indicated price guidance of mid-40 to 50 basis points above three-month SIBOR for the riyal denominated Islamic bonds, or sukuk.
Three-month SIBOR is currently at 2.22 percent.
The company had won approval from Saudi regulators for a sale worth up to 5 billion riyals ($1.33 billion) and the final size will be determined when books close on Wednesday, the person said, adding it was unlikely SABIC would apply to raise the ceiling on the sale despite strong demand.
The bonds, denominated in the dollar-pegged Saudi currency, provide an investment vehicle for Saudi investors starved of choice, the person said. Like other Gulf Arab oil producers, the country is flush with cash as oil prices have jumped nearly six-fold in the last six years.
The sale also highlights investor appetite for securities denominated in Gulf currencies — of which all but Kuwait’s are pegged to the weak U.S. dollar — amid speculation countries in the region may revalue to stave off rising inflation.
“There’s lots of liquidity in the Saudi market, more than the surrounding Gulf, and a lack of riyal investments. People are also reluctant to lend in dollars,” the person said, referring to dollar scarcity on revaluation expectations.
The sukuk sale is SABIC’s third, and the five-year bonds were rated A+ by ratings agency Standard & Poor’s. HSBC Saudi Arabia and Calyon Saudi Fransi were joint lead managers for the sale.
SABIC is raising the money to finance projects and for general corporate purposes, its Chief Financial Officer Mutlaq al-Morished told Al-Arabiya television in April.
Sukuk comply with Islam’s ban on interest, and returns are derived from underlying physical assets that typically pay a rent or dividend to bondholders.