Saudi Arabia’s bond sale: what to watch for
https://www.ft.com/content/b1e4ff3c-9096-11e6-8df8-d3778b55a923
The article from Financial Times is about Saudi Arabia’s upcoming bond sale. This is the Saudi government’s first international bond sale, which is getting all the investors into a craze. Saudi Arabia wants to raise between 10 billion and 20 billion dollars. However, there is an estimated 50 billion dollars worth of demand for these bonds. What is surprising though is that it is such a large surplus for bonds that are only rated at A. The amount of debt targeted is as much as the kingdom needs to get to a debt to GDP ratio of .3 by 2020. So in the coming years there is going to be chunks of bond sales at a time. All of these should total to about 120 billion dollars worth of debt sold. There has been speculation that Saudi Arabia’s economy may not be able to handle this amount of debt due to the low oil prices. As the world’s largest oil producer, Saudi Arabia’s economy moves directly with the prices with oil.
This caught my eye due to my interest in the economy and how a country is able to rely so heavily on resource but still able to generate a large response selling bonds in a down time. This relates to Networks in that it is a Matching and Network Power situation. Saudi Arabia’s bonds are popular among investors because they believe oil will recover in the future. Since the bonds can go as long as 30 years investors believe that there will be a bounce back within that time. Due to the large demand, the situation can never result in a perfect match, as there are more buyers than sellers. In addition, Saudi Arabia has a lot of power in this network. Being the only seller of these bonds, Saudi Arabia has a lot of choices to who they want to sell the bonds to. On the other hand, the buyers only have one option so there are no better options for them. Overall, in looking at a situation, seeing it through the lens of network theories add a new light to it.