This content is from: Portfolio

Why Would a Saudi Oil Fund Borrow $11 Billion?

Because the Public Investment Fund thinks it can profit by playing the markets.

A Saudi Arabian sovereign wealth fund has taken the unusual step of securing an $11 billion syndicated loan, the organization announced Monday. 

The Public Investment Fund (PIF), which is based in Riyadh, said this move is the first step in its “strategic, medium-term debt funding program.” 

“We are pleased to have completed this international syndicated loan, with the total size higher than initially planned due to strong interest and favorable pricing,” said Yasir Al-Rumayyan, managing director of the fund, in a statement. “This is the first step in incorporating loans and debt instruments into PIF’s long-term funding strategy.”

This is the first time the sovereign wealth fund has taken out a loan, according to the announcement. 

PIF’s long-term strategy relies on four sources of funding: capital injections from the government, asset transfers, investment returns, and loans and debt instruments issued by PIF. 

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“It is important to establish a core banking group as we continue to expand our activities and develop into one of the most prominent users of banking services in the region,” Al-Rumayyan said in a statement.

Proceeds of the loan will be used for “general corporate wealth purposes,” according to PIF. With the borrowed billions, the fund has a greater capacity to pursue big-ticket investments — a strategy that is already under way. 

In 2016, PIF cut a $3.5 billion check to Uber for a stake in the ride-sharing company. The sovereign wealth fund has also committed up to $45 billion to Softbank’s massive Vision Fund, a $100 billion venture capital vehicle.    

On Monday, after announcing the loan, PIF said it plans to invest $1 billion in Lucid Motors, an electric car maker based in the United States. The deal is still awaiting regulatory approvals and has not closed. 

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