Saudi Arabia seeks bank loans for first time in a decade

I am still of the opinion that the oil price war that Saudi Arabia has been waging against shale oil, Russia and Iran, was misguided and due primarily to a geopolitical machismo that was grossly overestimated. It was misguided because shale fracking is not a technology that is going to go away. In the short term some of the more expensive shale wells may close, but they can very soon start up again. But more importantly, shale gas and oil are available all over the world. They just haven’t been developed yet. And those that don’t have access to shale – like Japan – will have access to gas from methane hydrates within a decade. And there is more gas available from methane hydrate than from shale which, in turn, is more gas than all the natural gas resources known.

In the long run I expect the Saudis to be the losers. Their budget deficit climbed to approach $100 billion last year and now, for the first time in a decade, they are looking to borrow.

Reuters: 

Saudi Arabia is seeking a bank loan of between $6 billion and $8 billion, sources familiar with the matter told Reuters, in what would be the first significant foreign borrowing by the kingdom’s government for over a decade.

Riyadh has asked lenders to submit proposals to extend it a five-year U.S. dollar loan of that size, with an option to increase it, the sources said, to help plug a record budget deficit caused by low oil prices.

The sources declined to be named because the matter is not public. …

The kingdom’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. …….. 

…… Analysts say sovereign borrowing by the six wealthy Gulf Arab oil exporters 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, Gulf 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. ……. 

The pricing of the loan is likely to be benchmarked against international loans taken out by the governments of Qatar and Oman in the last few months, according to bankers. Because of banks’ concern about the Gulf region’s ability to cope with an era of cheap oil, those two loans took considerable time to arrange and the pricing was raised during that period.

Oman’s $1 billion loan was ultimately priced at 120 basis points over the London interbank offered rate (Libor), while Qatar’s $5.5 billion loan was priced at 110 bps over, with both concluded in January.


 

Advertisements

Tags: , ,


%d bloggers like this: