Saudi Arabia intends to take Bank loan in the amount of $6 billion to $8 billion, which will be the first most significant foreign borrowing by the Kingdom’s government for the first time in ten years.
Riyadh asked the lenders to extend the five-year loan in U.S. dollars with a possibility of extension. This will help patch up the budget deficit caused by record low oil prices.
The sources that provided this information to Bloomberg, wished to remain unknown. Also went unanswered request to the Ministry of Finance and the Central Bank of Saudi Arabia to comment on the situation.
Last week, Saudi Arabia has approached banks to discuss the idea of issuing international credit, and details such as the size and term of the loan, not talked about.
Last year the budget deficit in Saudi Arabia has reached almost $100 billion, the Government overcame this gap by reducing the huge stock of foreign assets and issuance of state bonds. However, if low oil prices will persist for several years, at the current rate of loss of reserves of the Kingdom only through the issuance of bonds to Finance the huge budget deficit will not succeed.
Of the British consulting company Verus Partners, founded by former Citigroup bankers mark Aplina and Andrew Elliot, advises the Saudi government on the issue of the loan.
The company has sent out requests to the group of banks on behalf of the Ministry of Finance of Saudi Arabia, adding that the banks that will issue a loan, will have more chances to participate in the organization of international bond issues, which Saudi Arabia can carry out this year.
Analysts say that in 2016 borrowing six rich countries-oil exporters of the Persian Gulf can be as high as $20 billion or even more. This is quite a significant increase compared with the period when the region on the background of excess funds was able to carry out lending to the rest of the world.
Against the background of low oil prices all six States have either already started to implement plans borrowing, or soon intend to do. It is expected that the Gulf countries will spend more and more foreign borrowing.
In mid-February, the Agency Standard & Poor’s lowered the long-term credit rating of Saudi Arabia by two notches to “A-“. The other two major global rating agencies retain a higher rating, but last week Moody’s Investors Service put forward by Saudi Arabia in the review toward a possible downgrade.
Nevertheless, bankers claim that Saudi Arabia has all the chances to get a loan, considering the welfare of the Kingdom. Net foreign assets of Saudi Arabia continues to make up almost $600 billion, while the levels of public debt are among the lowest in the world.
The level of credit pricing is probably comparable to the pricing of international loans taken by the governments of Qatar and Oman over the past few months, say bankers.
Amid concerns of banks about the ability of Gulf States to survive the era of cheap oil took significant time to negotiate the extradition of the two loans, in addition, during this period the price increased.
Loan in Oman $1 billion calculated at a rate of 120 basis points above the London interbank offer rate and the loan is Qatar’s $5.5 billion is 110 basis points. Both contracts were concluded in January.
“There are indications that Saudi Arabia will be contracted at a rate above this, because since then the world has undergone significant changes,” said one of the bankers in the middle East, referring to the actions of rating agencies.