Saudi Arabia is negotiating to enter Banco dos Brics – 05/28/2023 – Market

The New Development Bank, a credit institution based in Shanghai better known as the “Brics Bank”, is in talks with Saudi Arabia to admit the country as its ninth member, a measure that would strengthen its financing options, as the shareholder founder, Russia, struggles under the impact of sanctions.

The kingdom’s membership would reinforce ties between the bank, established by the world’s largest developing economies as an alternative to Western-led Bretton Woods institutions, and the world’s second-biggest oil producer.

“In the Middle East, we attach great importance to the Kingdom of Saudi Arabia and are currently engaged in a qualified dialogue with them,” the New Development Bank (NBD) told the Financial Times in a statement.

The talks with Saudi Arabia come as the NBD prepares to embark on a formal assessment of its funding options, which have been called into question by Russia’s invasion of Ukraine. The bank holds its annual meeting on Tuesday and Wednesday (30-31).

The association would strengthen Riyadh’s ties with the Brics countries at a time when Saudi Arabia, the world’s biggest exporter of crude oil, is also seeking closer relations with China. Chinese President Xi Jinping hailed a “new era” in the countries’ ties when he visited the kingdom late last year, and Beijing in March negotiated an agreement between Saudi Arabia and Iran to restore diplomatic ties.

Saudi Arabian officials were unavailable for comment.

The NBD was created in 2015 by the so-called Brics —Brazil, Russia, India, China and South Africa— to lend funds for development projects in emerging economies. It has lent $33 billion (R$165.3 billion) to more than 96 projects across the five founding countries and has expanded its membership to include the UAE, Egypt and Bangladesh.

Saudi Arabia would represent yet another wealthy shareholder as the NBD assesses its ability to raise funds after the war in Ukraine raised concerns about the bank’s dependence on Russia. As a founding member, Russia holds a stake of around 19% in the bank.

The NBD was forced to suspend its Russia exposure of $1.7 billion (R$8.5 billion), or about 6.7% of its total assets, and stop funding new Russian projects to reassure investors that it was complying with Western-led sanctions against Moscow.

Fundraising options are “the most important thing right now,” Ashwani Muthoo, director general of the NBD’s independent valuation office, which was created last year, said in an interview. “We are struggling to mobilize resources.”

Muthoo, who declined to comment on the Saudi talks, said the council wants to look into alternative instruments and currencies to bring in funds. The NBD raised yuan funds from China and was trying to raise the South African rand this year.

“We’ll have to look at the situation in Russia, the war … those are the kinds of things we’ll have to look at,” Muthoo said.

Moscow has said it sees the bank as an instrument to help ease the impact of Western sanctions and move away from dollar-pegged oil sales. Russian Prime Minister Mikhail Mishustin said on a visit to China this week that Moscow sees “one of the main objectives of the bank” as defending the bloc from “the illegitimate sanctions of the collective West”.

The Asian Infrastructure Investment Bank (AIIB), another multilateral lender in which China is the largest shareholder, also froze its business in Russia last year, although it had far less exposure.

The NBD and AIIB moves reveal how even institutions designed to challenge Western multilateral organizations largely cooperated with financial sector sanctions against Russia due to its reliance on access to dollar finance.

Ratings agency Fitch downgraded the NBD’s credit rating from AA+ last July to AA, warning that the “reputational risk” from Russian participation could potentially limit access to the dollar bond market.

This month, the agency revised its outlook for the bank from “negative” to “stable”, noting steps taken to mitigate its exposure to Moscow. Multilateral lenders often rely on high ratings and low financing costs to lend cheaply.

Translated by Luiz Roberto M. Gonçalves