By Nicolas Parasie and Margot Patrick
DUBAI--Saudi Arabia is seeking a fresh injection of dollars by selling international bonds, banking documents show, drawing early support from Western banks in the kingdom's first debt sale since the killing of journalist Jamal Khashoggi.
The bond sale is backed by several high-profile Western banks, suggesting they are willing to work with Saudi Arabia despite the furor over Mr. Khashoggi's death in October at the hands of Saudi agents. BNP Paribas, JPMorgan, HSBC, Citi and NCB Capital are arranging the bonds, which are at benchmark size--meaning at least $500 million.
The Saudi bond sale--expected to be finished on Wednesday evening--would extend a borrowing spree that began in 2016 when, faced with a drop in oil income, the country turned to international debt markets to shore up its finances and bankroll its ambitious diversification efforts. In 2 1/2 years, Saudi Arabia has sold over $50 billion in bonds, becoming one of the biggest issuers of debt among emerging markets.
Offering their bonds at 2 percentage points and 2.5 percentage points above U.S. Treasury bond benchmarks, the Saudis appear confident that demand hasn't withered for their debt since Mr. Khashoggi's death. While those prices would offer generous yields for investors, they aren't much higher than what Saudis have paid in the past on bonds.
But few firms have publicly cut ties or sought to diminish their relationship with Saudi Arabia since Mr. Khashoggi's death beyond cancellations at a marquee investment conference in Riyadh in October.
"The hunger for yield may trump the conscience of bankers," said one banker in the region of the bond sale.
At HSBC, a bank with decadeslong ties to Saudi Arabia, executives have privately said they view the Khashoggi murder as unacceptable and that message was transmitted to country officials. But they pointed to human rights abuses by other countries where the bank operates, and said the matter wouldn't disrupt its relationship with Saudi Arabia.
HSBC holds a roughly 29% stake in what will be the country's third-largest bank by assets after a three-way bank merger completes this year.
Along with other international banks and companies, HSBC Chief Executive John Flint pulled out of October's Future Investment Initiative conference in Saudi Arabia but other top executives attended and sat on panels. Mr. Flint in late October said the world relies on Saudi Arabia for its oil and the bank had a duty to customers and employees there to maintain its relationship.
Executives at other banks and companies have echoed those sentiments. JPMorgan, HSBC and Citi earned the most from Saudi Arabia investment banking business last year, Deologic data show.
Saudi authorities say Mr. Khashoggi was killed by a team of rogue operatives who are being held accountable. The kingdom's prosecutors are conducting trials for 11 suspects.
The Central Intelligence Agency concluded that Crown Prince Mohammed bin Salman ordered Mr. Khashoggi's death. Turkish authorities say the operatives were acting on orders from Riyadh.
The bond issuance comes at a time of financial strain for Saudi Arabia. Last month, the kingdom announced record new spending, despite a decline in oil prices that would open up a wide budget deficit. Saudi Arabia's public debt stands at around 19% of gross domestic product and officials have previously said it could grow to about 25% in 2021.
Saudi Arabia's new bonds would mature in 2029 and 2050, according to a marketing document sent by one of the arranging banks. The initial price guidance is 200 basis points over U.S. Treasurys for the 2029 tranche and 250 basis points over U.S. Treasurys for the 2050 tranche. Saudi Arabia is rated A1 and A+ at Moody's and Fitch respectively.
Saudi bonds have generally generated strong demand from investors drawn to the kingdom's financial strength underpinned by enormous oil reserves.
Saudi Arabia joins Turkey and Israel who are also selling international bonds.
Emese Bartha contributed to this article.
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