Riyadh to seek $12bn in bank loans after Saudi Aramco IPO stalls
Sovereign wealth fund aims to fill hole left by postponed blockbuster listing
Saudi Arabia’s sovereign wealth fund is primed to choose international banks to lend it up to $12bn, filling the hole left by the delayed listing of state energy group Saudi Aramco and providing financing for crown prince Mohammed bin Salman’s ambitious economic reforms.
The loans will be the first made to the Public Investment Fund, the vehicle used to drive the young prince’s vision for an economy less dependent on oil, which has placed bold bets on electric car maker Tesla, ride-hailing app Uber and space travel company Virgin Galactic.
The loans are particularly important for the fund as plans to list Saudi Aramco, from which it was due to receive proceeds, have been postponed indefinitely. Riyadh’s focus has shifted away from the blockbuster IPO, which had been expected to raise in the region of $100bn, in favour of other means of financing for the PIF.
Some of the most senior names in international banking, including JPMorgan Chase’s Jamie Dimon, Morgan Stanley’s Franck Petitgas and Goldman Sachs’s Dina Powell, the former official from the Trump administration, have been actively pitching for the deal.
Banks who have spent the past few years courting the kingdom and counting on fees from the Saudi Aramco IPO are jostling to secure favour for other transactions.
The PIF had originally hoped to raise up to $8bn from loans, but people with knowledge of the process said it was likely to reach as much as $12bn. “They should easily reach that target,” said one banker involved. “Everyone has gone in fairly aggressively.”
As many as 16 banks are expected to participate in the loan, with the lead banks to be selected later on Thursday, the people said.
Several senior bankers said it was critical to be seen as involved in the loans to the PIF because the state fund is also planning to sell a $70bn stake in Sabic, the Saudi chemicals group, to Saudi Aramco, in one of 2018’s largest deals. The deal, which moves money from one state coffer to another, will have implications for league table rankings that banks use to measure their performance against rivals.
While work on the Saudi Aramco IPO has dramatically slowed amid concerns about legal exposure and an inability to generate a $2tn valuation, some bankers have shifted their focus to the Sabic deal, said one adviser.
They are also assessing how the Sabic transaction might impact the viability and timing of a future Saudi Aramco flotation, the adviser said. The kingdom insists the IPO has not been called off despite mounting signs it is unable or unwilling to execute a listing.
Banks are vying for a chance to participate in a potential $40bn-$60bn debt financing that Saudi Aramco will need to finance any deal to buy the Sabic stake from the PIF.
One adviser had previously told the Financial Times that a large bond issuance for Saudi Aramco would achieve some of the same objectives as a listing, in terms of raising funds and requirements for disclosure. Although it could be a substitute for a flotation, this person said, a decision to list later would raise “extra” PIF funds.
The PIF, led by Yasir al-Rumayyan who is a close ally of Prince Mohammed, has more than $250bn of assets under management that it plans to expand to $400bn by 2020. To finance deals, the fund has received cash from the Saudi central bank, sought to sell stakes in companies it owns, issue debt and draw on proceeds from the privatisation of state assets.
It is expected to rely increasingly on bond and bank loan funding as finance ministry handouts have diminished and big-ticket investments, including tens of billions of dollars pledged to funds run by SoftBank and Blackstone, have yet to yield returns.
Earlier this month, the FT revealed that the PIF had quietly built close to 5 per cent stake in Elon Musk’s electric car company Tesla. Mr Musk later posted a tweet saying he was considering taking the company private and that he had the “funding secured”.
Mr Musk then clarified his comments, saying that his discussions with the PIF had led him to believe that it was only a matter of finalising their support for a deal. However, people close to the PIF have given no indication that the state fund is any serious discussions about putting more money into Tesla to allow Mr Musk to take his company private.
Syndicated loans to sovereign wealth funds are unusual, with large Middle Eastern funds such as the Qatar Investment Authority typically borrowing against specific investments instead.
Law firm Latham & Watkins is helping the PIF on the loan process, while White & Case, the law firm who was leading the Saudi Aramco IPO work, is set to work with the banks, according to the loan documents.