Saudi government seeks $10 billion in rare loan deal

Saudi Arabia has so far primarily focused on raising funds through bond sales.

Saudi Arabia is in talks to raise as much as $10 billion in a rare loan deal, marking the latest step in the kingdom’s efforts to line up financing for Crown Prince Mohammed bin Salman’s diversification plan.

The Saudi Ministry of Finance is speaking with banks including large Wall Street lenders for the loan, according to people familiar with the matter, who asked not to be identified discussing private information.

No final decisions have been made. The kingdom could ultimately decide not to proceed with the deal if it doesn’t get the right price or if market conditions are unfavorable, the people said.

Saudi Arabia has so far primarily focused on raising funds through bond sales. The kingdom is now one of the most active sovereign issuers in emerging markets, raising nearly $20 billion in debt this year, just shy of the full-year record set in 2017.

Saudi sovereign loans are relatively rare, though the kingdom has done at least two large loan deals worth $10 billion or more since 2016, according to data compiled by Bloomberg.

The finance ministry didn’t respond to a request for comment. Officials have previously said they are looking to explore alternative financing options as part of plans to diversify the kingdom’s sources of funding.

Saudi Arabia last week projected that its 2025 budget would be $65 billion for this year, more than double the previous forecast, as the government overshoots on spending and draws in less revenue.

Before the revision, Riyadh had expected to borrow about $37 billion this year, with most of that raised through capital markets and about 30% via private channels.

A larger share of future financing is likely to come from non-market sources, Fitch Ratings said in a report Friday, citing Saudi Arabia’s large borrowing needs and the risk that increased debt issuance could drive up costs.

Despite strains stemming from weak oil prices and heavy domestic spending, key entities based in the kingdom have pushed on with big-ticket deals. The Public Investment Fund was the largest contributor to the $36 billion in equity being put in to finance last month’s blockbuster buyout of Electronic Arts Inc.