Daily Management Review

Funding In Chinese Yuan May Be Sought By Saudis


08/24/2017




Funding In Chinese Yuan May Be Sought By Saudis
Possibilities of closer financial ties between Saudi Arabia and China were raised after media reported that the former is willing to consider funding itself partly in Chinese yuan.
 
In order to cover a big budget deficit caused by low oil prices, the Saudi government has started borrowing tens of billions of dollars abroad in the past year. But the U.S. currency has entirely dominated its foreign bond issues and loans.
 
While marking a success for China, the biggest market for Saudi oil, in its drive to make the yuan a top international currency, obtaining some funds in yuan could give Riyadh more financial flexibility.
 
"One of our main objectives is to diversify the funding basis of Saudi Arabia," Vice Minister of Economy and Planning Mohammed al-Tuwaijri told a Saudi-Chinese conference in Jeddah.
 
"We will do that through access to investors or bodies of liquidity in the markets. China is by far one of the top markets. We will also access other technical markets in terms of unique funding opportunities, private placements, panda bonds and others."
 
Tuwaijri added, "We will be very willing to consider funding in renminbi and other Chinese products, and Industrial and Commercial Bank of China nd other divisions have shown interest for us to do that."
 
Bonds from non-Chinese issuers which are sold within China and are yuan dominated are Panda bonds. Her bank was willing to sponsor Saudi issues of panda bonds, said An Liyan, chief executive of ICBC International, an arm of ICBC, the biggest Chinese bank, at the conference.
 
Financing major investment projects that would expand its economy and create jobs was the more important aim for Riyadh, compared to the need to cover its budget deficit and this is why Riyadh was interested in raising money abroad, Tuwaijri said.
 
"Ideally, we would be funding through project finance and bond markets and other means," he said.
 
Saudi Arabia and China planned to establish a $20 billion investment fund on a 50:50 basis, Saudi Energy Minister Khalid al-Falih said on the sidelines of the conference.
 
"It is preliminary at this stage but the commitment from the top is there," Falih said.  without giving details of the strategy, he said the fund would invest in sectors such as infrastructure, energy, mining and materials.
 
In recent years, as a means to cement bilateral economic ties, China has announced plans to establish such joint investment funds around the world. last October a plan for a fund with France was revealed by Beijing while in December 2015 Beijing said it would establish a $10 billion fund with the United Arab Emirates.
 
11 business deals worth about $20 billion is expected to be signed with China this week, Falih said on Thursday. Some of the deals may be memorandums of understanding rather than concrete projects while others may be more detailed versions of agreements reached on the Asian tour.
 
Saudi Arabia hopes to develop new industries as part of efforts to diversify its economy beyond oil exports, which include manufacturing and tourism and hence it is keen to attract Chinese investment for those industries.
 
Riyadh’s main sovereign wealth fund, the Public Investment Fund, is believed to have around $180 billion of assets, and Riyadh is also eager to boost the profits of tat fund. Tuwaijri said that the PIF is looking at investment opportunities in China's shipping and transport systems and other infrastructure.
 
(Source:www.reuters.com) 






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