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Saudi wealth fund takes out unprecedented $11bn loan Open in fullscreen

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Saudi wealth fund takes out unprecedented $11bn loan

A man counts Saudi riyal banknotes in Riyadh [Getty]

Date of publication: 17 September, 2018

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The kingdom is increasingly cash-strapped as it seeks funds to finance its expensive and sweeping economic and social reform programmes.
Saudi Arabia's sovereign wealth fund secured its first ever international loan, an unprecedented move for an investment fund, which typically uses its own resources to grow an economy.

The Public Investment Fund (PIF) said in a statement that it had obtained an $11 billion loan as "the first step in its strategic, medium-term debt funding programme".

"We are pleased to have completed this international syndicated loan," the fund's managing director Yasir al-Rumayyan said.

The PIF had previously sought to raise billions of dollars through an initial public offering of shares in Aramco to fund projects that seek to reduce the kingdom's dependence on oil and diversify the economy.

The IPO was the centrepiece of Crown Prince Mohammed bin Salman's Vision 2030 plan.

But the plan was reportedly shelved by King Salman as the cash generated by the IPO seemed poised to fall short of expectations - analysts had said bin Salman's estimate the state-owned oil giant was worth $2tn was outlandish. 

That prompted the PIF to turn to other sources to fund its programmes. 

The fund said that under the Future Investment Initiative launched in October 2017, it aims to beef up its assets to $400 billion by 2020.

Its current holdings are estimated at $230 billion, mostly in the form of major stakes in companies including SABIC petrochemicals, Saudi Arabia's largest listed firm.

The PIF is in talks to sell its 70-percent stake in SABIC to Aramco for an estimated $70 billion as another way of raising cash.

The fund is aggressively pushing a host of big-ticket investments - from Uber to the planned $500 billion NEOM mega city on the Red Sea coast.

Since 2016, PIF has committed to investments worth $95 billion including stakes in high-risk tech firms such as electric car company Tesla, according to the International Monetary Fund (IMF).

After oil prices crashed in mid-2014, Saudi Arabia - the world's top crude exporter - accumulated budget deficits of more than $260 billion and borrowed over $100 billion to help finance the shortfall.

Saudi Arabia also intervened in March 2015 in Yemen's war to bolster the internationally-recognised government of President Abdrabbuh Mansur Hadi after the Iran-backed Houthi rebels overran the capital and much of the country.

Experts say Saudi Arabia's air intervention has cost the kingdom upwards of $100 billion.

At least 10,000 Yemenis have died since the war began, with 8 million on the brink of famine in the Arab world's poorest country. 

Agencies contributed to this report. 

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