Saudi Arabia Set to Secure $10 Billion Loan
April 20 2016 - 7:20AM
Dow Jones News
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.
Write to Nico Parasie at nico.parasie@wsj.com
(END) Dow Jones Newswires
April 20, 2016 07:05 ET (11:05 GMT)
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