Saudi Arabia upscales 2016 syndicated loan to $16bn

The kingdom received "exceptional response" from both existing and new banks on revised deal

Saudi Arabia is increasing the size of its $10bn syndicated loan by another $6bn. Fayez Nureldine / AFP

Saudi Arabia is upsizing its $10 billion syndicated loan by another $6bn, as the country looks to bolster funding to plug its budget deficit and boost spending to revive growth in the Arab world’s biggest economy.

The kingdom received "an exceptional response to this process from the global bank market, from both existing holders and new banks", the debt management office of the ministry of finance said in a statement on its website. Pricing for the revised $16bn funding facility will be "set at a margin representing a 30 per cent reduction," it said.

The original funding secured in 2016 carried a spread of 120 basis points over Libor, according to data compiled by Bloomberg. Requests for proposals were sent to the 14 relationship banks that participated in the original funding round two years ago, in addition to a group of financial institutions who have sought to join the kingdom’s core bank group, the DMO said in the statement.

International lenders including HSBC Holdings, JP Morgan and Bank of Tokyo-Mitsubishi were part of the 2016 deal, the country’s first loan for at least 15 years.

The DMO is currently finalising the documentation process and intends to close the financing by mid-March. Keeping in mind the strong global demand for Sharia-compliant issuances from the kingdom, a significant Islamic tranche will be introduced to the new transaction, it said.

Saudi Arabia, like the rest of its Arabian Gulf peers, relies heavily on the sale of hydrocarbons for state revenues. The kingdom has been forced to cut spending in the past three years, after oil prices slumped from a mid-2014 peak of $115 per barrel to as low as $29 per barrel in early 2016.

While crude prices have stabilised near $70 a barrel in recent months, Riyadh still needs to borrow from domestic and international debt capital markets to plug its estimated $52bn budget deficit for 2018.

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The kingdom, whose economy shrank by 0.5 per cent last year, announced a record expansionary budget for 2018 to kick start growth, and plans to raise $31bn this year. It secured about $36bn in 2017, including $14bn from domestic bonds and $22bn from international debt markets.

The consistent progress made by the kingdom over the past two years to realise goals of its Vision 2030 economic transformation agenda via the Fiscal Balance Programme is evident through the global market’s response to the up-scaled transaction, the DMO said.

The improved terms are a “recognition of the strengthening of the Saudi economy,” Minister of Finance Mohammed Al Jadaan said. “This also illustrates the Ministry of Finance’s role as part of Vision 2030’s ambition to create a global investment powerhouse.”