Saudi Wealth Fund to Seek Bridge Loan of Up to $8 Billion

(Bloomberg) -- Saudi Arabia’s sovereign wealth fund has started preliminary talks with banks to raise a loan expected to be between $5 billion and $8 billion as it seeks funding for new investments to diversify the kingdom’s economy, people familiar with the matter said.

The Public Investment Fund, or PIF, is looking for a bridge loan that will be fully underwritten by lenders and would be repaid with proceeds from the $69.1 billion sale of its stake in Saudi Basic Industries Corp. to Saudi Aramco, the people said, asking not to be identified because the information is private. Talks with banks are still at an early stage and the final size of the loan will depend on their response, the people said.

A spokesman for the PIF said its funding strategy includes “four sources of finance, including capital injections and asset transfers by the government, retained investment returns, and loans and debt instruments.” He declined to comment further.

PIF is a central part of the government’s effort to wean the economy away from oil under a plan known as Vision 2030. The fund aims to control more than $2 trillion by that date and currently has assets of about $290 billion, according to data from the Sovereign Wealth Fund Institute. Last year, it raised $11 billion from a group of international banks in its first ever borrowing.

Saudi Aramco, the world’s largest oil company, this week debuted in the international capital markets to fund part of the Sabic acquisition, issuing $12 billion of bonds. Aramco will pay for half of the Sabic stake when the deal closes this year and the rest over the subsequent two years. The deal between the three government-owned entities -- where the kingdom’s sovereign wealth fund sells its 70 percent stake in Sabic to Aramco -- moves money from one pocket of the state to another and helps provide funding to the PIF that was expected to come from the initial public offering of the state oil company.

©2019 Bloomberg L.P.