* Sukuk could price almost flat to existing bonds
* Jumbo deal size could add 10-15 basis points premium
* Demand from Saudi banks seen high
* Roadshow started on Sunday, ends Tuesday
By Davide Barbuscia
DUBAI, April 10 High demand for Saudi Arabia's
international sukuk, set to be the largest ever dollar Islamic
bond, will reduce the new issue premium to barely a few basis
points over Saudi Arabia's existing conventional bonds,
The dual-tranche sukuk, with maturities of five and 10
years, could total up to $10 billion, bankers previously said. A
transaction of that scale could translate into a premium of 10
to 15 basis points over Saudi Arabia's existing five- and
10-year paper issued in October last year.
But should the kingdom keep the issue size in check, the
sukuk is likely to trade flat to Saudi's existing curve,
Saudi Arabia representatives gave no indications of expected
size and pricing during meetings in Abu Dhabi and Dubai on
Sunday, the first day of the sukuk roadshow, investors who
attended those meetings said.
The delegation included representatives from state oil firm
Saudi Aramco, the central bank and ministry of finance, in what
one Dubai-based fixed income portfolio manager described as a
"very high calibre, high level" roadshow.
The roadshow will end on Tuesday in London. Initial price
thoughts could be released as early as then, with the issuance
taking place the following day.
Should the new issuance size not exceed a threshold of
approximately $6 billion, price guidance is expected to tighten
to a premium of maximum five basis points above the existing
curve, some investors said.
"The bonds should trade flat to the conventional as local
investors will have high demand for the sukuk given the likely
zero capital at risk weighting being applied to the sukuk for
the domestic banks and the limited amount of available sukuk,"
said Max Wolman, senior investment manager for emerging market
debt at Aberdeen Asset Management.
The kingdom's conventional notes maturing in 2021 were
quoted with a bid yield of roughly 2.85 percent on Monday
, while the 2026 bonds were yielding about 3.6
percent, Thomson Reuters data showed.
Demand for the paper from Saudi banks is expected to be
significant, also because the government has suspended monthly
sales of domestic bonds for over six months, freeing up
But demand from U.S. accounts could be limited because of
the complexity of the chosen sukuk structure and the "lack of
duration", noted a Dubai-based fixed income portfolio manager.
"Also, Saudi in the secondary is very liquid, so if U.S
investors want to get Saudi paper they can buy it there, and
U.S. investors were heavy buyers of Saudi Arabia's debut
international bond last year.
Saudi Arabia plans to borrow between $10 billion and $15
billion internationally in 2017, a senior official said in
December, as it tries to plug a budget deficit caused by lower
(editing by John Stonestreet)