In Rare Step, Saudi’s Sovereign Wealth-Fund Raises $11 Billion Loan
Cash will be used to meet tens of billions of dollars of commitments PIF made to development projects and to outside investment funds
DUBAI—Saudi Arabia’s sovereign-wealth fund said Monday it signed an $11 billion syndicated loan with global banks, as the government institution prepares to invest in new industries and spend overseas to diversify the oil-dependent economy.
The loan marks the first time The Public Investment Fund has borrowed; the proceeds would be used for “general corporate purposes,” according to a statement from the sovereign-wealth fund. The total size of the loan was higher than initially planned due to strong interest from banks and favorable pricing, it added.
PIF didn’t name the banks involved in the loan. The sovereign-wealth fund didn’t immediately respond to requests for comment.
The cash is expected to be used to help the sovereign meet tens of billions of dollars of commitments it has made to development projects at home and to outside investment funds, such as SoftBank Group Corp.’s 9984 -0.41% $100 billion Vision Fund and a $40 billion Blackstone LP infrastructure investment vehicle.
Raising debt represents an unusual strategy for a sovereign fund, which often uses national resources to grow a country’s wealth for future generations. But PIF has a double-pronged mandate. It seeks not only to increase national wealth but also to create entire new industries in Saudi Arabia that will boost the government’s non-oil revenues, such as tourism, technology and entertainment.
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 firms such as Uber Technologies Inc. and Tesla Inc. PIF is also funding plans to create an entire $500 billion technology-driven city near Egypt and Jordan.
Crown Prince Mohammed bin Salman is attempting to transform Saudi society and placed PIF at the heart of his state’s economic overhaul, dubbed Vision 2030.
The fund has tied up with SoftBank and Blackstone to invest in new technologies and U.S. infrastructure projects. It’s 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.
To help fund the plans, the Saudi government also is encouraging its state oil giant to raise billions in loans and bonds to buy PIF’s stake in the country’s national chemicals firm. That process is expected to inject up to $70 billion more into the sovereign-wealth fund’s coffers.
Saudi officials had planned to issue public stock for Saudi Arabian Oil Co., known as Aramco, to help fund the PIF’s plans. But that process has since been put on hold in part due to the level of scrutiny it would bring to the oil firm. Instead of the IPO, Aramco and Saudi institutions have begun to raise large amounts of debt.
Saudi Arabia also last week launched a $2 billion Islamic bond issuance to help fund fiscal spending in continuation of more than $40 billion of borrowing over the past two years. The government is running a fiscal deficit as it attempts to restructure spending and increase revenues through new taxes and other means.