In Rare Step, Saudi's Sovereign-Wealth Fund Raises $11 Billion Loan – Wall Street Journal

Residential housing and skyscrapers stand on the city skyline in Riyadh, Saudi Arabia.


Photo:

Waseem Obaidi/Bloomberg News

DUBAI—Saudi Arabia’s sovereign-wealth fund has begun cobbling together billions of dollars from different sources to help deliver an economic overhaul and replace funds it had expected from the stalled listing of oil giant Aramco.

The Public Investment Fund said Monday it signed an $11 billion syndicated loan from banks and it is also in talks to sell a 70% stake in Saudi Arabia’s state-owned petrochemicals company to Aramco for as much as $70 billion. The sovereign fund also has drawn on foreign-currency reserves at the Saudi central bank in recent months to boost overseas spending, according to economists and comments Sunday by a bank official to Saudi media.

PIF’s debt raising is an unusual strategy for a sovereign fund, which often uses national resources to increase a country’s wealth for future generations. But the Saudi sovereign has a double-pronged mandate to both increase wealth and create new industries that will boost the government’s non-oil revenues. Other sovereign funds, such as Singapore’s Temasek Holdings Pte. Ltd. and China Investment Corp., also have raised debt and are making bets on sectors such as venture capital and technology that sovereign-wealth funds have typically shied from.

Saudi Arabian Crown Prince Mohammed bin Salman has charged PIF with diversifying the country’s oil-dependent economy as part of a program known as Vision 2030.

The program’s centerpiece had been a listing of Aramco, known officially as Saudi Arabian Oil Co., which was expected to inject as much as $100 billion into PIF’s coffers. The IPO was supposed to happen late this year, but the process has since been put on hold, while PIF still requires cash to meet its stated ambitions and commitments.

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In only two years, the roughly $225 billion sovereign-wealth fund has shifted from a little-known holding company for government assets to one of the world’s most influential investors, buying stakes in Silicon Valley companies such as Uber Technologies Inc. and

Tesla
Inc.

It also has made tens of billions of dollars of commitments to

SoftBank Group
Corp.’s

9984 -0.41%

$100 billion Vision Fund and a $40 billion

Blackstone Group

LP infrastructure investment vehicle.

After news of the loan emerged Monday, PIF then said it had invested about $1 billion into California-based startup Lucid Motors to help the firm launch its first electric vehicle in 2020.

The fund’s interest in electric-car markets is driven by its ambition to one day create an electric vehicle, battery and solar-power production hub in the kingdom, The Wall Street Journal has reported.

Splashing the Cash

Saudi Arabia’s sovereign-wealth fund has quickly sourced billion-dollar deals.

name

Location

year

VALUE

Softbank

$45 billion

Japan

2016

20

Blackstone

U.S.

’17

Russian DIF

10

Russia

’17

5.3

AccorInvest*

France

’18

Uber

3.5

U.S.

’16

2.0

Tesla†

U.S.

’18

Adeptio‡

1.2

UAE

’16

1.1

Posco

S. Korea

’15

Virgin

1.0

U.S.

’17

0.5

Noon

UAE

’16

Magic Leap

0.4

U.S.

’18

*Part of a Consortium of buyers. †Estimated 4.6% purchase in listed shares reported by Financial Times. ‡Estimated value based on company’s total sale value.

Source: Public Investment Fund press releases. Includes committed capital and announced stake purchases

PIF is also funding plans to create an entire $500 billion technology-driven city named Neom near the kingdom’s borders with Egypt and Jordan. It is building a Disney World-style development of theme parks outside the capital Riyadh and plans to create a vast tourism destination on the Red Sea.

PIF’s foray into the international market for loans mirrors wider Saudi government appetite for debt.

Saudi officials are encouraging Aramco to raise billions in loans and bonds to buy PIF’s stake in the chemicals firm Saudi Basic IndustriesCorp. Aramco is negotiating the price for Sabic, as the firm is known, but is expected to raise about $10 billion in bank loans and a further $40 billion in bonds to fund the deal, the Journal has reported.

The Saudi government itself has tapped bond and loan markets for more than $50 billion over the past roughly three years, a steep increase in borrowing. It is running a fiscal deficit after launching a major domestic spending program to stimulate private-sector growth while trying to raise revenues through new taxes and other means.

Despite the sharp increase in borrowing, Saudi Arabia’s consolidated government debt, at roughly 14% of gross domestic product of $683 billion, is one of the world’s lowest, according to Fitch Ratings. Adding the confirmed and planned debt raisings by PIF and Aramco would increase the debt-to-GDP ratio by another 10 percentage points.

But bankers and economists say there is robust interest from lenders, for now, in debt from the Saudi sovereign and government-related institutions. They say more investors than expected have tried to take part in Saudi debt raisings over the past year. PIF on Monday said the $11 billion loan was larger than initially planned because of strong interest from banks and favorable pricing.

Write to Rory Jones at rory.jones@wsj.com