Saudi Arabia Set to Secure $10 Billion Loan to Address Budget Shortfall

Wall Street Journal

DUBAI—Saudi Arabia is set to secure a $10 billion loan from international banks as the kingdom seeks to address a budget shortfall caused by the fall in oil prices, according to five bankers close to the transaction.

Saudi Arabia increased the loan size from an initial target range between $6 billion and $8 billion, after receiving strong demand from a wide range of global banks, said the people familiar with the matter. The terms of the loan have been agreed and only requires the documentation to be finalized, said the people.  

Among the participating lenders are U.S. banks J.P. Morgan, Goldman Sachs and Morgan Stanley, but also a strong Asian contingent including Bank of Tokyo-Mitsubishi UFJ, Industrial and Commercial Bank of China and Mizuho Bank, said the bankers.

Saudi Arabia’s Ministry of Finance didn’t immediately respond to requests for comment.

The five-year loan marks the country’s return to the global credit markets after a quarter-century. It also comes at a time when the major oil exporters of the Persian Gulf are under pressure to find new sources of capital after their principal source of income dwindled as energy prices started to fall in 2014.

Saudi Arabia, whose credit rating was recently cut by ratings firms Fitch and Standard & Poor’s, isn’t the only country in the region raising fresh funds. Qatar and Oman have already borrowed in recent months, while Abu Dhabi is considering an international bond, according to the bankers.

Standard & Poor’s said earlier this year it expects Middle Eastern and North African sovereigns to borrow a total of $134 billion this year, nearly double the amount of 2014 when oil prices were above $100 a barrel.

Saudi Arabia’s loan is expected to pave the way for the country to obtain additional cash by tapping the international bond markets, the bankers said. A timeline for when it might enter the bond markets hasn’t been determined yet.

In its attempt to soften the fiscal pain from low oil prices, Saudi Arabia has already announced a set of reforms that include raising utility prices, cutting subsidies and privatizing state assets. The country is expected to unveil a more detailed economic overhaul plan in the following weeks.

To finance its budget deficit, Saudi Arabia has issued domestic bonds and has been drawing down on its foreign reserves. Those reserves have now dipped to below $600 billion, down almost $150 billion from their peak in the middle of 2014.

“They’ve been tapping their external reserves significantly and would like to slow that down,” said Giyas Gokkent, a Dubai-based economist at the Institute of International Finance.

Bankers said the list of participating banks reflects the appetite of Asian banks to expand outside their domestic market. Japanese banks, in particular, are looking for fresh opportunities abroad as they face negative interest rates at home.

One of the bankers said the loan was priced at around 100 basis points above the London interbank offered rate. Another said the deal wasn’t necessarily hugely profitable for some of the banks involved but could open doors toward future work in the kingdom.

Verus Partners, a London-based boutique advisory set up by former Citigroup bankers, has been advising the Saudi government on the loan transaction, according to the bankers familiar with the matter.

One thought on “Saudi Arabia Set to Secure $10 Billion Loan to Address Budget Shortfall

  1. “We certainly can’t even think about cutting back on our lavish lifesyles, all we can do is take this loan and squeeze the testicle pliers a little tighter on our plebs.”

    Saudi Arabia, a pisshole in the sand, with despots for rulers, are about the most disgusting example of civilized barbarians on the planet.

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