(Bloomberg) — Saudi Arabia’s wealth fund is set to tap a broader array of investors and pursue debt sales through its subsidiaries, as it grapples with the scale of the kingdom’s spending ambitions.
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The Public Investment Fund is weighing a debut euro-denominated bond this year and plans to tap onshore US investors for the first time, according to people familiar with the matter. It’s also encouraging subsidiaries to borrow independently, with Neom Co. and AviLease among firms potentially issuing debt, some of the people said, declining to be identified discussing confidential information.
These plans represent a step toward the $925 billion entity’s new long-term financing strategy, which seeks to limit the need for additional funding from the Saudi government, one of the people said.
PIF, the main entity tasked with Crown Prince Mohammed bin Salman’s Vision 2030 program, has already raised $4 billion from debt markets in January. Its mining unit followed with a $1.25 billion Islamic bond last month.
Any new sales would add to the $14.3 billion raised by the sovereign so far this year, and extend the borrowing spree that’s made the kingdom a top issuer in emerging markets in the past two years.
Representatives for the PIF declined to comment.
The kingdom’s spending over the next few years will also include outlays for events like the FIFA World Cup in 2034. Those commitments, against the backdrop of sluggish foreign direct investment, low oil prices and persistent budget deficits, have already prompted the government to start re-prioritizing projects.
Saudi Arabia needs the price of oil to be around $108 per barrel to fund its spending once domestic investments by the PIF are taken into account, according to estimates from Bloomberg Economics. That’s significantly higher than current prices of about $70 a barrel.
Further complicating the picture is a pledge by the crown prince, who also chairs the fund, to engage in $600 billion worth of trade and investment with the US over the next four years. President Donald Trump has asked the kingdom to plow in even more, heightening pressure to secure additional sources of cash — if these deals are to materialize.
The PIF, meanwhile, plans to increase annual deployment to up to $70 billion. It’s funded through a mixture of retained earnings from its investments, borrowing and cash or asset transfers from the government. However, dividends from Saudi Aramco, in which the fund owns a 16% stake, are set to fall after the oil giant cut its annual payout.
The fund will likely explore additional options, including selling down a small part of its $461 billion portfolio of listed stocks, people familiar with the matter said. It could also list companies on the local bourse — deals in the pipeline include medical procurement firm Nupco, Saudi Tabreed District Cooling Co. and Saudi Global Ports Co., Bloomberg News has reported.
The PIF has established about 100 companies, responsible for projects spanning everything from tourism to artificial intelligence. They include Diriyah Co., a $63 billion initiative to transform a historical district into a tourism hub.
The firm has begun exploring plans to raise external funding, Diriyah Chief Executive Officer Jerry Inzerillo said in an interview. It’s seen “great interest from foreign equity partners that will in future replace the PIF equity,” he said. It’s expected to issue its first debt later this year.
Portfolio companies will be encouraged to borrow on the strength of their own balance sheets and business plans, with the fund reluctant to lend explicit credit support, people familiar with the matter said. The financing department will coordinate these debt sales.
“We believe that some subsidiaries should have relatively easy access to capital markets and will likely be able to issue debt independently,” said Afiya Zaveri, Middle East and North Africa fixed income strategies portfolio manager at Azimut.
While borrowing will increase at the level of the PIF and its subsidiaries, the focus will be on maintaining credit ratings.
Ali Dhaloomal, a credit research analyst at BofA Global Research, expects debt issuance by Saudi corporates including banks, the PIF and its subsidiary companies, to climb to $40 billion this year, from $31 billion in 2024.
“The PIF aims to push its entities that can raise money internationally to do it as that helps create space in the local market for companies that are not yet ready to raise international funding,” he said.
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A key question is if investors will want to buy into these bond sales.
Demand for PIF debt has been strong so far, though some projects that achieve the broader goals of the Saudi authorities “do not necessarily translate into financial returns for investors,” according to Farouk Soussa, MENA economist at Goldman Sachs Inc.
“Private investors are not going to invest in a project because it creates value for other sectors of the economy.”
(Adds analyst comment in 15th paragraph.)
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