Kuwait raises over $11 billion from bond sale as investors pile in to Gulf debt

By Rachna Uppal

ABU DHABI, Oct 1 (Reuters) - Kuwait, a top oil producer, raised $11.25 billion from a three-part bond sale, drawing hefty investor demand for its first U.S. dollar issue since 2017 in a strong return to global debt markets after years of domestic political gridlock.

The Gulf state was the latest sovereign from the region to tap the bond market as strong global appetite and attractive borrowing costs allow governments to diversify funding sources to help plug budget deficits and invest in economic diversification strategies.

Kuwait sold $3.25 billion in a three-year portion at 40 basis points over U.S. Treasuries, $3 billion in a five-year tranche at 40 bps over the same benchmark and $5 billion in a 10-year portion at 50 bps.

Order books were over $23 billion at launch, fixed-income news service IFR reported, which allowed pricing to tighten from early guidance.

2.5 TIMES OVERSUBSCRIBED

Kuwait's finance ministry said in a statement that the transaction was 2.5 times oversubscribed, with the order book peaking at $28 billion.

"This landmark issuance is a testament to the global market’s confidence in Kuwait’s fiscal strength," acting finance minister Sobeeh Al-Mukhaizim said in the statement.

"Beyond financing needs, this transaction reinforces Kuwait’s credibility in global markets and deepens our partnership with international investors."

Although there were concerns about Kuwait’s governance, public finances, oil dependence and limited non-oil economy, its low level of outstanding debt was reassuring to investors, said Justin Alexander, director at Khalij Economics and Gulf analyst at GlobalSource Partners.

Kuwait has estimated sovereign wealth assets of more than $1 trillion. It does not disclose exact figures.

It passed a new public debt law in March, after the previous one expired years ago. That raised the borrowing ceiling to 30 billion dinars ($98 billion) from 10 billion dinars previously and allowed for the possibility of longer borrowing terms.

The law, like other reforms, had been gridlocked for years over persistent clashes between appointed governments and Kuwait's directly elected parliament. The emir dissolved parliament last year for up to four years, paving the way for the government to push through reforms.

Despite plans to diversify revenue sources away from hydrocarbons, oil revenue accounted for almost 90% of government revenue in the last fiscal year.