KSA borrowing $17 billion to diversify oil-dependent economy
KSA's sovereign wealth fund borrows $17 billion senior unsecured term loan (Getty Images)
The Kingdom of Saudi Arabia's (KSA) sovereign-wealth fund, the Public Investment Fund (PIF), said on Wednesday that it secured a $17 billion senior unsecured term loan, one of the largest-of-its-kind and twice oversubscribed, from a syndicate of 25 banks across Europe, the US, and Asia. The 7-year loan will be used to pay for a 2018 loan worth $11 billion as well as assist in funding MbS' 2030 vision.
The most recent PIF borrow will allegedly inject fresh cash into KSA's economy, as Mohammed bin Salman (MbS) seeks to diversify KSA's oil-dependent economy. It is worth noting, that in the past, and as part of MbS' economic reform campaign, the PIF had allegedly promised to spend $40 billion domestically, per year.
The PIJ is now raising capital at a time when it bears large debts, a strange strategy for a sovereign wealth fund. The fund, typically, serves to use national resources to invest and preserve the country's wealth in the long-term and transgenerationally. However, what the Kingdom has done has been quite the opposite. The $620 billion PIF has borrowed heavily in order to support its very own capital.
According to Fahad Al Saif, head of global capital finance at PIF, the fund “will continue to explore a variety of debt funding sources as it delivers on its strategic objectives,” adding “It is a significant achievement for PIF, raising a record-sized term facility in the longest tenor ever for a loan of its size.”
It combines aspects of a venture-capital investor, as well as a private equity firm, with the goal of creating new domestic enterprises to boost non-oil government revenue.
The fund is developing social and touristic projects in KSA as well as entertainment facilities. The most unusual of PIF's projects is Neom, a collection of technologically advanced cities that includes a plan to construct a 75-mile-long skyscraper. By 2030, MbS promised, approximately $160 billion would have been invested in Neom.
Read more: NEOM: A weird desert dream that might never come true