Strong interest in the proposed five-year loan was reported from a range of US, European and Japanese banks with Reuters reporting that the rate would be around 120 basis points above the London interbank offered rate.
The oil-rich kingdom has organised the loan just ahead of the expected publication of a National Transformation Plan (NTP) designed to restructure its economy away from its heavy reliance on oil.
The plan, covering the next five years, is not yet complete and details are still secret, but reports from the Gulf suggest 18 sectors of the economy have been identified for possible privatisation, which would also bring some much needed revenue into the government.
Asset sales
Among the assets up for sale is rumoured be a 5% stake in national oil giant Saudi Aramco, and possibly stakes in downstream subsidiaries of the company. Other candidates are said to include the postal system, the ports authority, Saudi Arabian Airlines, state hospitals and even soccer teams.
Global oil prices dropped 44% last year and despite a slight recovery this year are currently trading around $40 a barrel. The price fall has forced Saudi Arabia, the world’s biggest oil exporter, to cut spending on energy subsidies and consider the sale of a sovereign bond and the shares in national companies
The country is also part of a plan by the six nations of the Gulf Cooperation Council (GCC) to implement a new VAT system, one of the first direct taxes in the region, which is due to come into effect as soon as late 2018.
Sovereign deal
The Financial Times reported that, following the loan deal, Saudi Arabia’s global sovereign bond issue is a step closer with institutions participating in the loan most set to benefit from a mandate to help Riyadh raise the bond.
“The loan is a way for Saudi Arabia to test the waters and set up an international borrowing profile,” Ewen Cameron Watt, senior director of the BlackRock Investment Institute, told the FT.
“This is paving the way for the kingdom to transform from a creditor nation into a debtor nation. It’s a significant moment of change in debt markets,” he said.
The Saudi fundraising also comes amid broader debt issuance as neighbouring oil economies also tap international markets.
Abu Dhabi has mandated Bank of America Merrill Lynch, JP Morgan and Citigroup to hold investor meetings this week ahead of the UAE capital’s third international bond.
Qatar, which last year raised a loan of more than $5bn, has sent out a proposal request to lenders to manage an international bond issue, bankers told the FT, and Lebanon has announced a sale of two bonds worth $1bn.
