Saudis explore about $8 billion in loans as war strains finances

Saudi Arabia is in early talks to raise at least $8 billion from a fresh loan, as it steps up efforts to diversify funding sources amid the economic fallout from the Iran war. 

The kingdom's National Debt Management Center has begun sounding out banks about a potential deal, according to people familiar with the matter, who requested anonymity to discuss private information.

 State-backed oil major Saudi Aramco is holding similar discussions with banks, some of the people said. Both potential transactions are at an early stage and may ultimately not materialize, according to the people.

 Representatives for NDMC, part of the kingdom's finance ministry, were not available for comment. Aramco declined to comment.

 

 The Saudi efforts come as the kingdom and other Gulf nations grapple with the economic fallout from the regional war, which continues to disrupt trade through the Strait of Hormuz, raise import costs and strain supply chains.

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 Tehran has targeted Saudi energy infrastructure, while Iran-backed Houthis have menaced ships in the Red Sea, complicating the kingdom's efforts to bypass the Hormuz by shipping oil from its western coast. Meanwhile, the economy suffered its steepest contraction since the pandemic in the second quarter, with the attacks contributing to a nearly 25% slump in the oil sector.

 Yet the conflict has also pushed up oil prices, providing some relief to Saudi Arabia's finances. Benchmark Brent crude has averaged around $87 a barrel this year, helping to ease pressure on the kingdom's finances in the wake of the war. Even so, Saudi Arabia posted a 34.3 billion-riyal ($9.1 billion) second-quarter deficit.

 The latest outreach comes after the NDMC said in May it had completed its annual borrowing plan, securing roughly 90% of its financing needs. It said any additional requirements would be met primarily through private channels and local markets.

 Saudi Arabia has emerged as one of the most active emerging-market borrowers, raising about $6 billion in domestic and international bonds this year, while Aramco has raised another $4 billion. Its sovereign wealth fund raised $7 billion in May, one of the first public-market deals since the Iran war began.

 Late last year, the NDMC raised a $13 billion, seven-year syndicated loan, a rare move that signaled the kingdom's efforts to tap non-market sources of capital to finance Crown Prince Mohammed bin Salman's diversification plan.

 That recalibration toward outside capital is visible across the kingdom. Aramco is pursuing a privatization plan that could eventually raise as much as $35 billion, Bloomberg News has reported. The oil giant has also previously said it will remain active in debt markets and issue new types of instruments to attract different sets of investors.

 The shift is also playing out at the kingdom's $900 billion sovereign wealth fund. Under its new five-year strategy, the Public Investment Fund is preparing to make a more aggressive push to hand mature assets to private owners, pursue listings and divestments, and rely increasingly on outside capital.

 Despite war-related disruptions and Riyadh's push to recalibrate spending on ambitious mega-projects, Saudi Arabia has continued to deploy billions into global deals spanning gaming to electric vehicles. It recently committed to building a €6 billion ($7 billion) theme park complex near Paris.