Saudi Arabia asks banks to discuss major loan - sources
The world’s largest oil-exporting country is forced to turn to overseas capital markets following a slump in global crude prices. The December 2015 Reuters file photo shows a worker filling a car with fuel at a petrol station in Riyadh, Saudi Arabia.
DUBAI: Saudi Arabia has asked banks to discuss providing it with a major international loan that could total around US$10bil (RM41.4bil), in the first significant foreign borrowing by the government for over a decade, sources aware of the matter said on Wednesday.
The government sent an invitation to banks to discuss the US dollar loan, the sources said, declining to be named because the matter has not been made public.
The invitation did not specify the size of the loan, but the sources said they believed it could be around US$10bil or possibly more.
Calls to the Saudi finance ministry and central bank seeking comment after hours on Wednesday were not answered.
Before oil prices began to plunge in mid-2014, Saudi Arabia aggressively paid down its government debt; although some state-linked companies issued bonds overseas, the sovereign did not.
Now, however, the government is being forced to turn to overseas capital markets to finance part of its deficit. Its domestic borrowing has started to strain liquidity in the local banking system, pushing up market interest rates.
Bankers believe many institutions will be willing to lend to Saudi Arabia, given its low debt and massive oil reserves. But it may have to pay much higher rates than it would have faced just 18 months ago.
Earlier this month, Standard & Poor’s cut the kingdom’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.
The sources said they understood 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.
Governments and companies in the oil-exporting Gulf Arab states are expected to increase their international borrowing sharply this year, as they reach the limits of their ability to finance themselves through domestic borrowing.
Qatar took out a US$5.5bil (RM22.8bil), five-year international loan in January, though it ended up borrowing much less than the amount of up to US$10bil which it had originally envisaged, apparently because banks asked unexpectedly high rates.
At about the same time, the government of Oman borrowed US$1bil through an international loan. - Reuters
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