Bloomberg: Saudi Arabia seeks $8 billion loans as war hits finances

Saudi Arabia is in early discussions with banks to secure at least $8 billion through a new loan, as the kingdom seeks to diversify its financing options amid the economic impact of the war with Iran, Bloomberg reports, citing sources.

Sources said the National Debt Management Centre (NDMC), which operates under Saudi Arabia’s Finance Ministry, has approached banks to gauge interest in a potential deal. The discussions are preliminary, and the transaction may ultimately not go ahead. The NDMC did not immediately comment.

Saudi state-owned oil giant Aramco is also reportedly holding similar talks with banks.

The potential borrowing comes as Saudi Arabia and other Gulf states face economic pressures from the regional conflict, which has disrupted shipping through the Strait of Hormuz, increased import costs and put additional strain on supply chains.

Iran has targeted Saudi energy infrastructure, while Iran-backed Houthi forces have threatened vessels in the Red Sea. The disruptions have complicated Riyadh’s efforts to reduce its reliance on the Strait of Hormuz by transporting oil from terminals on the kingdom’s western coast.

Saudi Arabia’s economy contracted at its fastest pace since the pandemic in the second quarter, with the oil sector shrinking by nearly 25%, partly as a result of the attacks.

Higher oil prices, however, have provided some support for the kingdom’s finances. Brent crude has averaged around $87 a barrel this year, helping offset some of the fiscal pressure caused by the conflict. Saudi Arabia nevertheless recorded a second-quarter budget deficit of 34.3 billion riyals ($9.1 billion).

The latest talks come after the NDMC confirmed in May that it had completed its annual borrowing programme, securing around 90% of its financing requirements. The agency said additional funding needs would mainly be covered through private financing and domestic markets.

Saudi Arabia has become one of the most active borrowers among emerging markets. The kingdom has raised about $6 billion through domestic and international bonds this year, while Aramco has secured another $4 billion. Saudi Arabia’s sovereign wealth fund raised $7 billion in May, marking one of its first public-market transactions since the war with Iran began.

Late last year, the NDMC arranged a $13 billion, seven-year syndicated loan to support power, water and public-utility projects. The move highlighted Riyadh’s growing willingness to use non-market sources of financing to support Crown Prince Mohammed bin Salman’s economic diversification programme.

The shift towards external financing is also evident at Aramco. The oil company is pursuing a privatization strategy that could eventually raise as much as $35 billion, while it has said it intends to remain active in debt markets and introduce new financial instruments to attract a broader range of investors.

Saudi Arabia’s $900 billion Public Investment Fund is likewise seeking to rely more heavily on external capital under its new five-year strategy. The fund plans to accelerate the transfer of mature assets to private investors, pursue more listings and divestments, and increase the role of outside financing.

Despite the economic disruption caused by the war and efforts to reassess spending on major development projects, Riyadh continues to invest heavily in international ventures ranging from gaming to electric vehicles. Most recently, it committed to a €6 billion ($7 billion) theme-park complex near Paris.

By Bakhtiyar Abbasov