Saudi Sovereign-Wealth Fund Joins 100-Year Bond Club
The Public Investment Fund raised $3 billion from three-part bond sale
Saudi Arabia braved turbulent markets to join the small club of issuers that have borrowed for 100 years from investors, with its sovereign-wealth fund selling the ultralong debt as part of a $3 billion bond-market debut.
The three-part sale of green bonds tapped global investors for funds that will help support projects at the heart of Crown Prince Mohammed bin Salman’s national economic transformation.
The Public Investment Fund sold dollar bonds with maturities of five, 10 and 100 years. They were priced with yields of 125 basis points and 165 basis points above U.S. Treasurys for five years and 10 years, respectively, and at 6.7% for the 100-year bond, according to a term sheet issued late Wednesday. Citigroup Inc., JPMorgan Chase & Co. and Goldman Sachs Group Inc. were among the banks involved.
“The GCC has been the best place to hide and weather the storm since the beginning of the year,” said Zeina Rizk, executive director of fixed income asset management at Dubai-based Arqaam Capital. “Especially with oil prices where they are now.” She said the issue was good value and placed orders for five-year and 100-year bonds.
The bond market has come under pressure as central banks around the world raise interest rates to fight inflation, leading to a 19% negative total return for the Bloomberg Global Aggregate bond index this year.
In the past, so-called century bonds have typically been issued in more benign market conditions but investors said the pricing and the kingdom’s strong fiscal position made it attractive. Some compared it to debt issued by Saudi Arabia itself and by national oil producer Saudi Arabian Oil Co., or Aramco.
The bond has a similar sensitivity to interest rates, or duration, as the longest-dated debt from Saudi Arabia or Aramco, but pays a higher interest rate, said Nick Eisinger, head of active fixed income at Vanguard.
“People are able to take a 10-year view but let’s face it, we have no idea what’s going to happen in 10 years. If you can do that, you should be able to take a view on 100 years—it’s certainly not 10 times worse,” Mr. Eisinger said. He also sought to buy the 100-year bond, which made up $500 million of the total sale. The modern kingdom of Saudi Arabia was founded in 1932, less than a century ago.
Century-bond issuance by governments began in the 1990s when China raised $100 million in 1996, followed by the central bank of the Philippines the year after. More recent issuers have included Argentina, Mexico and Austria in the 2010s, locking in ultralow interest rates, according to data from Dealogic.
While Saudi Arabia is the world’s biggest oil exporter, the bonds’ proceeds are slated to go to sustainable projects. Green bonds raise capital for environmentally friendly initiatives. The Saudi fund has said it plans to invest more than $10 billion in such deals by 2026.
The bond’s prospectus offered a first look at the finances of Saudi Arabia’s $600 billion wealth fund. In that document, the PIF highlighted its plans to develop a tract of land the size of Massachusetts for a futuristic mega-development called Neom and its investment in electric-car maker Lucid Group Inc. as examples of sustainable initiatives. It is also tasked with developing dozens of gigawatts of renewable-energy capacity in the kingdom.
The Organization of the Petroleum Exporting Countries, helmed by Saudi Arabia, and its Russia-led allies on Wednesday announced an oil production cut that is likely to increase prices. The OPEC+ move could benefit Russia by maintaining its revenues and boosting its war effort in Ukraine. Energy costs are already high as a result of the conflict, contributing to rising inflation globally, and pushing counties to more available dirty fuels in the near term. Brent crude, the global oil benchmark, is trading at roughly $93 a barrel.
Issuers of green bonds with large operations in carbon-intensive industries have come under scrutiny in the past. In 2017, Spanish oil major Repsol SA drew criticism after issuing a green debt to finance efficiency upgrades of refineries, with the bonds excluded from some green-bond indexes. The PIF itself largely doesn’t operate in the oil-and-gas industry.
Since then, the sustainable-bond market has broadened to include new categories such as debt that finances a company’s transition to cleaner operations and bonds with coupons linked to sustainability goals. Issuing green bonds helps broaden PIF’s investor base, analysts and investors said, to include buyers focused on environmental, sustainable and governance-related investments.
“It helps bring in ESG funds, who otherwise wouldn’t be able to buy them,” said Uday Patnaik, head of emerging-market fixed income at Legal & General Investment Management. “There are a lot of issuers coming out with green bonds; even India’s talking about potentially doing one.”