Saudi Arabia's government has asked banks to submit proposals to extend it a five-year, US dollar loan of between $6 billion and $8 billion, with an option to increase the size, sources familiar with the matter told Reuters on Wednesday.
Earlier this month, Reuters reported that Saudi Arabia had asked banks to discuss the idea of an international loan, but details such as the size and tenor were not specified.
The sources declined to be named because the matter is not public. Calls to the Saudi finance ministry and central bank seeking comment on Wednesday were not answered.
The loan would be the first significant foreign borrowing by the kingdom's government for over a decade, the sources said, to help plug a record budget deficit caused by low oil prices.
The country's budget deficit reached nearly $100 billion last year. The government is currently bridging the gap by drawing down its massive store of foreign assets and issuing domestic bonds. But the 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.
London-based boutique advisory 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.
The firm has sent requests for proposals to a small group of banks on behalf of the Saudi Ministry of Finance, the sources said. They added that banks participating in the loan would have a better chance of being chosen to arrange an international bond issue that Saudi Arabia may conduct as soon as this year.
Borrowings Increase
Analysts say sovereign borrowing by the six wealthy Persian Gulf Arab oil exporters (Saudi Arabia, Kuwait, the United Arab Emirates, Qatar, Bahrain, and Oman) could total $20 billion or more in 2016—a big shift from years past, when the region had a surfeit of funds and was lending to the rest of the world.
All of the six states have either launched borrowing programs in response to low oil prices or are laying plans to do so. With money becoming scarcer at home, Persian Gulf Arab companies are also expected to borrow more from abroad.
In mid-February, Standard & Poor's cut Saudi Arabia's long-term sovereign credit rating by two notches to A-minus. The world's other two major rating agencies still have much higher assessments of Riyadh, but last week Moody's Investors Service put Saudi Arabia on review for a possible downgrade.
Nevertheless, bankers said a sovereign loan from Saudi Arabia could attract considerable demand, given the kingdom's wealth; its net foreign assets still total nearly $600 billion, while its public debt levels that are among the world's lowest.
Economy Declining
One of Saudi Arabia’s biggest retailers, Jarir Marketing has warned that its sales would plunge by as much as 30% in the first quarter of this year, a sign of low oil prices weakening the country’s economy.
“The company expects this decline will affect most departments, particularly electronics because of lower sales of smartphones...as well as computers and peripherals,” Jarir said in a statement to the stock exchange.
The decline is partly because sales were unusually high in the first quarter of 2015, when they hit SR1.9 billion ($507 million).
But it is also due to state austerity measures in response to low oil prices, which caused the government to run a budget deficit of nearly $100 billion last year.
Jarir’s chairman Mohammed Al-Agil told Reuters in January that government spending curbs had cut overtime payments and other bonuses to employees in the public sector, where most Saudi citizens work, and may have reduced their income by about 10%.
“The decline in consumer spending was widely expected and we have started to see signs of it over the past two or three months, but most of it is in the area of durable goods,” he said.
“It is normal that people spend less at times of concern over a slowdown. People will start to spend less on the number of times they dine at restaurants and so on...and definitely will think twice before they buy a new car or a Rolex watch.”
