Saudi Arabia’s sovereign wealth fund (PIF) is looking for new sources of capital to finance its plan to transform the country’s oil-dependent economy.
The plans include issuing bonds, taking bank loans and selling shares, according to unnamed sources cited by Bloomberg. The Fund’s cash reserves have fallen to $15 billion, the lowest level since 2020.
The fund, with assets of $940 billion, is tasked with supporting Saudi Arabia’s Vision 2030 program, which aims to transform the economy. A key pillar of the program is to make the country a global investment power.
With the Saudi government projecting a deficit every year until 2026, there is a sense of urgency in the treasury to find funds for the billions of dollars in spending.
The domestic banking system
This means that the margins are narrowing to complete the kingdom’s ambitious effort in a period of high interest rates and a lack of significant foreign direct investment. Besides, the country’s government itself acknowledged for the first time that some projects could be delayed and completed after 2030.
Another issue that concerns the Fund is the liquidity of the domestic banking system, which it would not like to drain too much. That is why he recommends that his subsidiaries borrow in dollars whenever possible. In this way the banks, which have to manage the high cost of borrowing, could focus on real estate projects in the country.
The goal is to become a player to be reckoned with in the bond market
It aims to regularly issue bonds, creating a market and yield curve, a benchmark that will price bond sales, while it plans to regularly tap into the debt markets with billion-dollar issues of varying maturities. It has already issued two bonds raising $7 billion.
The Fund will also tap into equity markets, as it has a substantial $170 billion portfolio that includes holdings in Saudi Telecom, Saudi Arabian Mining, and Tadawul Group, which owns the stock exchange. It plans to move forward with stock offerings, while continuing to play a role in corporate IPOs. In his immediate plans are Nupco, the country’s largest medical supply company, and Saudi Global Ports Co.
The plans he supports
The Fund will need capital to cover spending, which is expected to exceed $70 billion a year after 2025, from current levels of about $40 to $50 billion a year, its governor, Yasir Al Rumayyan, explained. Some of the funds will go towards paying for projects the kingdom has started in recent years, including Neom, a 1.5 trillion dollar development project. dollars along the Red Sea coast.
It supports a $63 billion plan to turn a UNESCO World Heritage site in Riyadh into a tourist destination, a separate plan to create resorts along the country’s coast, and is spending tens of billions of dollars to help transform the kingdom into a global logistics center and manufacturing hub.
Chaired by Crown Prince Mohammed, the Fund is funded by borrowing, investment returns and funds from the state budget. Most recently, the kingdom gave the Fund an additional $164 billion stake in Saudi Aramco, which will generate annual dividend payments of at least $20 billion.
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