Saudi Arabia Considers Increase in Lending for Aramco IPO

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Saudi Arabia is considering increasing how much the kingdom’s banks can lend to local investors who want to buy shares in Aramco’s initial public offering, people with knowledge of the matter said.

The Saudi Arabian Monetary Authority met banks this week to discuss how much they can lend to domestic stock buyers who want to invest in the oil giant’s IPO, the people said, asking not to be identified because the information is private. Some lenders are seeking permission to offer greater leverage than what the central bank normally allows, they said.

The regulator wants to ensure that they are able to maintain enough liquidity in the local financial system, while still ensuring enough loans are available to support investors in the IPO, the people said. The final amount lenders are willing to provide will depend on the valuation Aramco seeks, with banks likely to be more conservative at higher valuations, they said.

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Saudi banks are gearing up for what’s set to be the world’s biggest share sale after years of falling loan growth and a decline in the pace of economic expansion. Many Saudis are expected to buy into the offering — only the kingdom’s sixth in two years — as a demonstration of loyalty to the country, allowing institutions to cash in on revenue generated from margin loans and brokerage.

SAMA’s meeting with banks Tuesday was part of the periodic meetings the central bank holds with lenders, a representative for SAMA said in an emailed statement. Aramco, officially known as Saudi Arabian Oil Co., declined to comment.

The sale could add as much as $12 billion in bank deposits as foreign funds buy up as much as 30% of stock being offered, according to Arqaam Capital Ltd. It’s also set to provide a much-welcome boost to lenders as Saudi citizens borrow to sign up to the sale. But any jump in lending could be brief — as investors receive only a portion of the shares they bid for — and borrowers are at risk of defaulting if the deal turns sour.

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