S Ara­bia seeks $6-8b bank loan to shore up state cof­fers

The Pak Banker - - COMPANIES/BOSS -

Saudi Ara­bia is seek­ing a bank loan of be­tween $6 bil­lion and $8 bil­lion, sources fa­mil­iar with the mat­ter told me­dia, in what would be the first sig­nif­i­cant for­eign bor­row­ing by the king­dom's govern­ment for over a decade.

Riyadh has asked lenders to sub­mit pro­pos­als to ex­tend it a five-year U.S. dol­lar loan of that size, with an op­tion to in­crease it, the sources said, to help plug a record bud­get deficit caused by low oil prices.

The sources de­clined to be named be­cause the mat­ter is not pub­lic. Calls to the Saudi fi­nance min­istry and cen­tral bank seek­ing com­ment on Wed­nes­day were not an­swered.

Last week, Reuters re­ported that Saudi Ara­bia had asked banks to dis­cuss the idea of an in­ter­na­tional loan, but de­tails such as the size and life­span were not spec­i­fied.

The king­dom's bud­get deficit reached nearly $100 bil­lion last year. The govern­ment is cur­rently bridg­ing the gap by draw­ing down its mas­sive store of for­eign as­sets and is­su­ing do­mes­tic bonds. But the as­sets will only last a few more years at their cur­rent rate of de­cline, while the bond is­sues have started to strain liq­uid­ity in the bank­ing sys­tem.

Lon­don-based bou­tique ad­vi­sory firm Verus Part­ners, set up by for­mer Cit­i­group bankers Mark Aplin and An­drew El­liot, is ad­vis­ing the Saudi govern­ment on the loan, the sources said.

The firm has sent re­quests for pro­pos­als to a small group of banks on be­half of the Saudi Min­istry of Fi­nance, the sources said. They added that banks par­tic­i­pat­ing in the loan would have a bet­ter chance of be­ing cho­sen to ar­range an in­ter­na­tional bond is­sue that Saudi Ara­bia may con­duct as soon as this year.

A spokesman for Verus Part­ners was not im­me­di­ately avail­able to com­ment.

An­a­lysts say sov­er­eign bor­row­ing by the six wealthy Gulf Arab oil ex­porters could to­tal $20 bil­lion or more in 2016 - a big shift from years past, when the re­gion had a sur­feit of funds and was lend­ing to the rest of the world.

All of the six states have ei­ther launched bor­row­ing pro­grams in re­sponse to low oil prices or are lay­ing plans to do so. With money be­com­ing scarcer at home, Gulf com­pa­nies are also ex­pected to bor­row more from abroad.

In mid-Fe­bru­ary, Stan­dard & Poor's cut Saudi Ara­bia's long-term sov­er­eign credit rat­ing by two notches to A-mi­nus. The world's other two ma­jor rat­ing agen­cies still have much higher as­sess­ments of Riyadh, but last week Moody's In­vestors Ser­vice put Saudi Ara­bia on re­view for a pos­si­ble down­grade.

Nev­er­the­less, bankers said a sov­er­eign loan from Saudi Ara­bia could at­tract con­sid­er­able de­mand, given the king­dom's wealth; its net for­eign as­sets still to­tal nearly $600 bil­lion, while its pub­lic debt lev­els that are among the world's low­est. The pric­ing of the loan is likely to be bench­marked against in­ter­na­tional loans taken out by the gov­ern­ments of Qatar and Oman in the last few months, ac­cord­ing to bankers.

Be­cause of banks' con­cern about the Gulf re­gion's abil­ity to cope with an era of cheap oil, those two loans took con­sid­er­able time to ar­range and the pric­ing was raised dur­ing that pe­riod.

Oman's $1 bil­lion loan was ul­ti­mately priced at 120 ba­sis points over the Lon­don in­ter­bank of­fered rate (Li­bor), while Qatar's $5.5 bil­lion loan was priced at 110 bps over, with both con­cluded in Jan­uary.

"The in­di­ca­tions are that a Saudi deal would have to price higher than that, as the world has changed sig­nif­i­cantly since those deals," one Middle East-based banker said, re­fer­ring to the rat­ing agen­cies' ac­tions.

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