Saudi Arabia seeks to borrow $ 10 billion from international banks

UNITED STATES, WASHINGTON (OBSERVATORY) — Saudi Arabia’s investment fund has finalized terms of a $ 10 billion loan it is seeking from several banks, sources familiar with the matter said.

The fund will pay an interest rate of 0.3% more than the London interbank rate, less than half the interest it paid on its previous loan, Bloomberg news agency quoted sources as saying.

The sources said the loan would be for one year with an option to extend it for an additional 12 months.

The fund is expected to repay the loan when it obtains $ 70 billion from the sale of a 70% stake in SABIC to Aramco.

Aramco is expected to pay half of the deal this year and the rest in the next two years.

If the short term of the new loan justifies a lower interest rate than the one it accepted, its large size could put pressure on some banks’ ability to lend, amid expectations of weak interest from some lenders.

The wealth fund last year borrowed $ 11 billion at an interest rate of 75 basis points (0.75 percent) above the London interbank rate for five years.

The fund, with assets valued at around $ 300 billion, is the main instrument of Crown Prince Mohammed bin Salman’s plan to diversify the economy and reduce its dependence on oil.

The government and its affiliates, such as the Public Investment Fund and Aramco, have raised more than $ 100 billion from the sale of international debt since 2016 through bonds and loans.

The kingdom has borrowed heavily over the last few years to refill state coffers depleted by falling oil prices.

According to budget data, the fiscal deficit estimates for the 2019 budget are about 131 billion riyals ($ 35 billion).

Saudi Arabia’s funding needs to meet this year’s deficit are estimated at $ 35 billion and will be met through net debt issuance of about $ 31.5 billion. The rest will come from government deposits with the Saudi Arabian Monetary Agency (SAMA), according to the debt management office.

By the end of 2019, the kingdom plans to raise its existing debt to about $ 181 billion, equivalent to 21.7% of GDP.

Saudi Arabia is trying to “contain” exposure to the fluctuation of interest rates on the existing debt portfolio by reducing the proportion of debt instruments with variable return on the portfolio.

At the end of 2018, fixed-interest debt accounted for 73% of Saudi issuances, and variable-rate debt stood at 27%. The government wants to increase the rate of fixed-interest debt to 78% of its portfolio by the end of 2019.


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