Saudi Arabia confirms budget cuts before bond issue

Budget cuts aheadA prospectus for a forthcoming Saudi Arabian bond issue, expected by some to be worth as much as $10 billion, reveals dramatic budget cuts in the face of low oil prices.

Saudi Arabia has reduced capital expenditure by 70%, according to the prospectus, as it delays or cancels infrastructure projects and other forms of spending.

The country hopes the data will reassure potential investors that its government is in control of the nation’s finances. Fitch Ratings, the ratings agency, recognised the challenges Saudi Arabia faces by assigning the bond an AA- rating with a negative outlook, in line with the agency’s overall credit rating for the country.

The kingdom’s balance sheet, “has continued to weaken as a result of lower international oil prices”, said the ratings agency.

Saudi Arabia aims to sell dollar denominated bonds in five, ten and 30-year tranches, depending on investor interest. Citi, HSBC and JPMorgan are leading the debt sale.

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