Saudis approach foreign banks for multi-billion dollar loan

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Saudi Arabia has long been flush with cash but is now seeking a loan to help offset a $100 billion budget deficit.

The kingdom is looking to snag a loan of between $6 billion and $8 billion, sources told Reuters. The proposal, for a five-year U.S. dollar loan of that size, would be the first significant foreign borrowing by the Saudis in over a decade.

AR-301259895The Saudi government, reeling from low oil prices, is currently bridging the budget gap by drawing down its store of foreign assets and issuing domestic bonds. Analysts, however, say those assets “will only last a few more years at their current rate of decline, while the bond issues have started to strain liquidity in the banking system.”

Last year, Standard & Poor’s cut Saudi Arabia’s long-term sovereign credit rating to A-minus. Last week, Moody’s Investors Service put Saudi Arabia on review for a possible downgrade.

London-based firm Verus Partners, set up by former Citigroup bankers Mark Aplin and Andrew Elliot, is advising the Saudi government on the loan, the sources said.

Low oil prices have hit the six wealthy Gulf Arab exporters hard, and borrowing from those nations could total $20 billion or more this year.

Banking analysts say the pricing of the loan to Saudi Arabia is likely to be benchmarked against international loans taken out by the governments of Qatar and Oman in the last few months.

Oman’s $1 billion loan was ultimately priced at 120 basis points over the London interbank offered rate (Libor), while Qatar’s $5.5 billion loan was priced at 110 basis points over, with both concluded in January.

“The indications are that a Saudi deal would have to price higher than that, as the world has changed significantly since those deals,” one Middle East-based banker said, referring to the rating agencies’ actions.