Saudi PIF Mulls Bond Sales, IPOs For Mohammed Bin Salman's Trillion-Dollar Economic Transformation Project

The Saudi Arabian Public Investment Fund (PIF) is contemplating an increase in bond sales and IPOs to finance the ambitious economic transformation project spearheaded by Crown Prince Mohammed bin Salman.

What Happened: The PIF is considering a surge in debt sales or bank loans to finance the trillion-dollar economic transformation project led by Crown Prince Mohammed bin Salman, reported Bloomberg. The fund’s cash reserves have dwindled to $15 billion, the lowest since 2020.

The PIF, a key driver of Saudi Arabia’s Vision 2030 program, is under pressure to secure funding for its multi-billion dollar spending commitments. This urgency is further compounded by the government’s forecasted budget deficit until 2026.

As part of its funding drive, the $940 billion PIF is considering additional bond sales and IPOs for its portfolio companies. The fund is also looking to minimize liquidity drain from local banks by encouraging its subsidiaries to rely on dollar borrowing.

Despite the PIF’s recent $7 billion bond issuance, experts believe this is just the beginning, given the fund’s shrinking treasury assets and ongoing spending requirements.

"We do not think that the PIF will stop at $7 billion," Pascal Bode, a strategist at Morgan Stanley, said in a note to clients, citing "the fall in the PIF's treasury assets and continued spending needs."

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"Despite the higher payout to the PIF, a funding gap is likely to remain," said Jean-Michel Saliba, Bank of America Corp.'s Middle East and North Africa economist.

Representatives for the PIF declined to comment, according to the report.

Why It Matters: The PIF’s plans to raise more funds come in the wake of a cash crunch caused by the ambitious development projects in Saudi Arabia. The country has resorted to unprecedented borrowing and potential stock sales in its crown jewel, Saudi Aramco, to continue funding these projects.

Amid these financial challenges, Saudi Arabia is also seeking a defense pact with the U.S., offering to accept a political commitment from Israel for the establishment of a Palestinian state. This move is seen as an attempt to bolster Saudi Arabia’s security against Iran and continue its economic transformation.

As part of its broader Vision 2030 initiative, Saudi Arabia is also diversifying its economy and attracting tourism and business by opening its first-ever alcohol store in Riyadh, exclusively for non-Muslim diplomats.

Additionally, the Kingdom is positioning itself as a “super region” for natural resources, with global powerhouses such as the United States, China, and Russia vying for its mineral resources.

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Mohammed bin Salman. Image Via Shutterstock