Facing falling oil revenues, Saudi Arabia takes out US$10b in bank loans to fund deficit

A Saudi woman counting Saudi riyal banknotes at a money exchange in Riyadh, Saudi Arabia, on Jan 20, 2016.
A Saudi woman counting Saudi riyal banknotes at a money exchange in Riyadh, Saudi Arabia, on Jan 20, 2016. PHOTO: REUTERS

DUBAI (BLOOMBERG) - Saudi Arabia has agreed terms with banks for its first sovereign loan in at least 15 years to boost falling oil revenues and reserves, people with knowledge of the matter said.

Saudi Arabia has not borrowed internationally since at least 1999, according to data compiled by Bloomberg.

The country's reserves have been depleted by falling revenues from lower oil prices. The world's largest oil producer has spent US$150 billion of its reserves since late 2014, with its fiscal deficit set to grow to 19 per cent of gross domestic product this year, the London Times reported.

At US$10 billion the loan is the largest to be raised in the Middle East since Saudi Aramco, the world's largest oil producer, obtained a US$10 billion financing in March last year. Qatar raised US$5.5 billion in December.

A large group of US, European, Japanese and Chinese banks are lending the funds, the people said. Saudi Arabia's initial request for as much as US$8 billion was significantly oversubscribed, allowing the country to increase the size of the deal, the people said.

The government will pay lenders about 120 basis points above the London interbank offered rate including margin and fees for the US$10 billion facility, the people said, asking not to be identified as the information is private. The loan will have a tenor of five years and should be signed before the end of April, the people said.

The kingdom will prepare for a bond sale and start a two- or three-year program once it concludes the loan deal, Minister of State Mohammad bin Abdulmalik Al-Sheikh said last month.

The Finance Ministry declined to comment.