Saudi Arabia is boosting the firepower of its sovereign wealth fund to accelerate deal making and lessen the country’s dependence on oil.
The Public Investment Fund is receiving a 100bn-riyal ($27bn) transfer from official reserves, according to a statement yesterday on the SPA official news agency, increasing its existing assets by about 17%.
The injection will help the fund diversify investments and revenues, it said.
The fund’s deal making has quickened this year as it seeks to increase the proportion of foreign investments to 50% by 2020 from 5%. It acquired a $3.5bn stake in taxi-hailing app Uber Technologies Inc in June and plans to put as much as $45bn into a $100bn global technology fund formed by Japan’s SoftBank Group Corp. Eventually, the kingdom wants the PIF, as it’s known, to become the world’s largest sovereign wealth fund.
“The government is aggressively pursuing its investment diversification plan,” John Sfakianakis, director of economic research at the Gulf Research Center, said by phone. “It also sends a powerful message that the local economy is seen as a tremendous opportunity and will boost private sector confidence after a series of government spending cuts.”
During the coming period, the PIF will focus on both domestic and international deals, including “expected high yield opportunities in the local market that support private sector investments and promote economic growth and local contents,” according to the statement.
The PIF, which is led by ex-Saudi Fransi Capital banker Yasir Alrumayyan and has assets of about 600bn riyals, most recently said that it’s taking a 50% stake in Dubai-based businessman Mohamed Alabbar’s investment vehicle Adeptio. It’s also contributing $500mn to Alabbar’s plan to create e-commerce firm Noon.
Saudi Arabia’s plans also include transferring to the sovereign wealth fund the ownership of oil giant Saudi Arabian Oil Co and proceeds from that company’s initial public offering. Once it takes ownership of the government’s stake in Saudi Aramco, the PIF will become the world’s biggest sovereign fund with assets of over $2tn, according to Deputy Crown Prince Mohammed bin Salman. The fund currently holds about $100bn of shares in listed local companies, including Saudi Basic Industries Corp and Saudi Telecom Co.
In March last year, the PIF was transferred under a committee controlled by Prince Mohammed. In his role as head of Economic and Development Affairs Council, the Prince chairs the board of the fund. It had previously been managed by the Ministry of Finance.
The prospect of the PIF becoming more acquisitive, coupled with the planned privatisation of Saudi Aramco and other state-owned companies, is attracting global investment banks to the kingdom. Fees paid to banks in Saudi Arabia jumped by almost a third to about $100mn in the first five months, according to New York-based research firm Freeman & Co.
JPMorgan Chase & Co advised the PIF on its investment in Uber and was a global coordinator on the kingdom’s $17.5bn bond sale in October along with HSBC Holdings and Citigroup Inc. The sale was the largest ever such emerging markets offering.
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