Saudi Arabia raised $5 billion in a dual-tranche bond sale with tenors of 12 and 40 years, a document showed, as it seeks to plug a large fiscal deficit.

The kingdom sold $2.75 billion in 12-year bonds at 130 basis points (bps) over 10-year US Treasuries and $2.25 billion in 40-year notes at 3.45 per cent, the document from one of the banks on the deal showed. It tightened the 12-year tranche by 35 bps and the 40-year by 30 bps from initial price guidance.

It drew more than $13 billion in orders for the 12-year bonds and over $9 billion in orders for the 40-year paper.

“The final pricing is in line with the sovereign curve and the high order book shows robust investor appetite for the region’s debt markets. This is sure to be the first of many deals by the kingdom this year,” a fixed-income strategist said.

The 12-year paper was trading up by 0.2 per cent on Wednesday after pricing just below par late on Tuesday, he said, in a sign that the final allocations left some unsatisfied demand in the market. The 40-year bonds priced at par on Tuesday, and were trading up by 0.3 per cent on Wednesday, he said.

The government expects to post a fiscal deficit of 141 billion riyals ($37.59 billion), or 4.9 per cent of gross domestic product, this year after an expected deficit of 298 billion riyals ($79.45 billion), or 12 per cent of GDP, in 2020.

Saudi Arabia expects public debt to increase to 937 billion riyals this year from 854 billion riyals last year.

“The government expects to finance the budgeted deficit for the fiscal year 2021 primarily through a combination of raising domestic and external indebtedness, to the extent necessary,” according to a bond prospectus seen by Reuters.

Its fiscal balance programme foresees the ratio of public debt to nominal GDP reaching up to 30 per cent by 2023, the prospectus said.

Saudi Arabia hired Goldman Sachs International, HSBC and JPMorgan as global coordinators for the debt sale. BNP Paribas, Citi, NCB Capital and Standard Chartered joined them as book runners and were also passive joint lead managers.

Last year, Saudi Arabia raised $12 billion via two international bond sales. Its oil giant Aramco raised $8 billion from a five-part bond sale in November, in part to pay out dividends - the bulk of which goes to the Saudi government.

Meanwhile the Saudi Arabia’s non-oil private sector enjoyed robust growth at the end of the year, driven by a substantial increase in output and the fastest rise in new business for 12 months.

Nevertheless, firms were cautious about hiring due to reports of excess capacity and the diverting of spending to input purchases.

The headline seasonally adjusted IHS Markit Saudi Arabia Purchasing Managers’ Index (PMI) rose to its highest reading for 13 months in December, up from 54.7 in November to 57.0, signalling a sharp improvement in operating conditions.

In addition, the index marked a fourth successive month of expansion and was broadly aligned with its average level of 56.9.

The headline IHS Markit Saudi Arabia PMI is a composite singlefigure indicator of non-oil private sector performance. It is derived from indicators for new orders, output, employment, suppliers’ delivery times and stocks of purchases. Any figure greater than 50.0 indicates overall improvement of the sector.

The rise in the headline index was driven by marked increases in both the output and new orders sub-components, with the latter seeing the sharper uptick. Notably, the latest data signalled the fastest upturn in new business for a year, which panellists attributed to improving market demand and price discounts at some companies.

Sales growth was largely driven by domestic orders, as export demand rose.

Consequently, firms raised their output levels for the fourth successive month in December, and at the quickest pace since November 2019. As well as incoming orders, respondents noted that ongoing projects also provided higher workloads over the month.

Commenting on the latest survey results, David Owen, Economist at IHS Markit, said: “The Saudi Arabian non-oil economy is well on the path to recovery, according to December’s PMI results, which indicated the strongest output growth since November 2019.

Moreover, the PMI is now just above its series trend level, suggesting the economy is growing at a relatively normal pace, albeit with a lingering output gap to recover.

“According to respondents, business activity has been helped by falling COVID-19 case numbers in the fourth quarter of 2020, despite other major economies suffering a ‘second wave’. The roll-out of a vaccine meanwhile led to increased optimism that demand will strengthen over the coming year.

“On the negative side, the latest expansion did not support a rise in job numbers during December.”