By Sarah Algethami
It’s been a year of aggressive dealmaking for Saudi Arabia’s sovereign wealth fund, the Public Investment Fund, or PIF. But a delay in the planned public offering of state-owned Saudi Arabian Oil Co – Saudi Aramco – means the PIF won’t immediately receive an expected $100bn in extra capital to invest. And amid the global furore over the killing of prominent Saudi critic Jamal Khashoggi, senior bankers and businessmen including the heads of Blackstone Group LP, BlackRock Inc, Uber Technologies Inc and Virgin Group pulled out of the PIF’s forum, the Future Investment Initiative, which begins today. It’s still unclear what this will mean for future PIF investments.
1. What does the
PIF invest in?
It’s heavily involved in transportation technology, with a 5% stake in electric car-maker Tesla Inc, valued at around $2bn; $1bn in Tesla’s aspiring rival, Lucid Motors Inc; and a $3.5bn stake in taxi-hailing firm Uber. It has announced that it will commit as much as $20bn to a US infrastructure fund run by Blackstone Group LP, build three cities (Neom, Red Sea and Amaala) on the Red Sea coast and set up a $1.1bn fund to support small and medium-sized enterprises. The PIF has committed $45bn to SoftBank Group Corp’s technology-focused Vision Fund, and Crown Prince Mohammed bin Salman, who controls the PIF, said in early October that it will put an investment of that same size in a second SoftBank fund. The PIF expects to deploy about $170bn over the next three-to-four years.
2. What is the fund’s purpose?
It’s central to the government’s effort to diversify the economy away from oil, under a plan known as Vision 2030. The fund was set up in 1971 to support projects of strategic significance to the Saudi economy and for most of its history focused mainly on its home market. In addition to its headline-making investments around the globe, it holds about $150bn of assets in listed Saudi companies, including stakes in Sabic, Saudi Telecom Co, and National Commercial Bank, the kingdom’s largest lender by assets. It currently has assets of more than $300bn, which could rise to $600bn by 2020, Prince Mohammed said in an interview earlier this month.
3. How will the Khashoggi case affect the fund?
It’s not clear yet, beyond thinning the attendance list at this week’s forum in Riyadh. Reversing earlier denials of involvement in Khashoggi’s disappearance on October 2, Saudi authorities said on Saturday that an initial probe showed that the Washington Post contributor was killed after “discussions” at the consulate turned physical. Khashoggi died after he was placed in a choke hold, a person with knowledge of the Saudi probe said. The PIF is an increasingly important player in global markets, so some firms will probably be willing to sacrifice any reputational risk in order to secure investment, said Jason Tuvey, senior emerging-markets economist at Capital Economics. Billionaire Richard Branson, for one, responded to the Khashoggi case by halting talks with the Saudi fund for a $1bn investment in the space-exploration units of his Virgin Group Ltd. Endeavor LLC, a Hollywood talent agency, is seeking to terminate a deal to sell a $400mn stake in the company to the wealth fund, according to a person familiar with the matter.
4. What happened to the Aramco IPO?
It will take place by 2021, Prince Mohammed has pledged. The share sale was meant to happen in the second half of 2018, but it was undone because of scepticism over the company’s valuation and a plan for Aramco to buy a controlling stake in Saudi Basic Industries Corp, known as Sabic. The crown prince said the IPO’s delay was rooted in a plan for Aramco to push into petrochemicals. He said it would have been unfair to go ahead with the listing only to surprise investors soon after with a big deal in chemicals.
5. What will the PIF
It might sell as much as 70% of its stake in Sabic to Aramco, a deal that could raise $70bn in capital for the fund. PIF could raise more by selling its stakes in other Saudi-listed companies. Debt is another option. In September, the fund raised an $11bn loan, marking its first-ever borrowing. The PIF is willing to borrow to diversify the Saudi economy and increase returns from investments.
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