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Blackstone, SoftBank deals put Saudi wealth fund on map

Blackstone, SoftBank deals put Saudi wealth fund on map

Saudi Arabia plans to expand its sovereign wealth fund into the worlds largest. The kingdom took a huge step toward that goal last Saturday when it signed billions of dollars of deals with Blackstone Group and SoftBank Group Corp.

The Public Investment Fund, or PIF, is at the centre of Saudi Arabia’s efforts to diversify revenue away from oil under an economic transformation plan known as Vision 2030. The fund could eventually control more than $2 trillion, according to Deputy Crown Prince Mohammed bin Salman. The sale of a less than 5pc stake in oil giant Aramco to the public will provide funds for investment.

“We want to be an investment powerhouse,” PIF managing director Yasir Alrumayyan said in a rare public appearance last Saturday during an event that gathered top Saudi officials and American corporate titans, including JPMorgan Chase Chief Executive Officer Jamie Dimon and Citigroup CEO Mike Corbat, in Riyadh. “Most of the investments we announced and will announce soon are international, but they will be in parallel with our investments in Saudi.”

The Public Investment Fund is at the centre of Saudi Arabia’s efforts to diversify revenue away from oil under an economic transformation plan known as Vision 2030

The PIF’s deal making has quickened this year as it seeks to increase the proportion of foreign holdings to 50pc from 5pc, excluding Aramco. Here are some of the fund’s biggest investments so far:

Blackstone Infrastructure Fund: The PIF agreed to commit $20 billion to an infrastructure investment fund with Blackstone, the world’s biggest private-equity manager.

Blackstone plans to raise the same amount from other investors and with leverage, the New York-based asset manager expects to have more than $100bn in purchasing power for infrastructure projects, primarily in the US The agreement is non-binding and terms are still being negotiated.

The potential investment reflects the PIF’s “positive views around the ambitious infrastructure initiatives being undertaken in the United States as announced by President Trump,” and will allow the PIF to “achieve long-term returns given historical investment shortfalls,” Alrumayyan said.

SoftBank Vision Fund: Saudi Arabia and SoftBank formally announced the first close of fundraising for the largest-ever technology investment fund last Saturday. More than $93bn has been secured from backers led by the PIF and the Japanese company, and the fund could grow to $100bn.

The PIF didn’t disclose the size of its investment, but bin Salman agreed to potentially invest up to $45bn in the fund over five years after a meeting with SoftBank’s Masayoshi Son. Apple Inc., Qualcomm Inc., Foxconn Technology Group and Sharp Corp. also put in capital.

“We are building a portfolio that is diversified across sectors, asset classes and geographies, and expect the Vision Fund to act as a platform to access a range of exciting, emerging opportunities in the technology sector,” Alrumayyan said in a statement announcing the deal.

Uber Technologies Inc.: The PIF invested $3.5bn in US ride-hailing company Uber Technologies Inc. last June, marking its arrival as a major global investor. The deal valued Uber at $62.5bn and gave Alrumayyan a board seat at the San Francisco-based company.

Saudi Arabian Military Industries: The PIF earlier this month set up a defence company — Saudi Arabian Military Industries, or SAMI — to help reduce the kingdom’s reliance on foreign purchases of military equipment and create a domestic manufacturing industry.

The wealth fund said SAMI will directly contribute around $3.7bn to the Saudi economy by 2030, invest more than 6bn riyals in research and development and create over 40,000 jobs in the engineering and technical fields.

“SAMI is a big thing,” Alrumayyan said. “We are the third-largest spender on military in the world so by 2030 we want to bring in 50pc of our procurement into Saudi Arabia.”

Mohamed Alabbar: The PIF was among investors contributing to start Middle East e-commerce venture Noon last November. Led by Dubai-based business tycoon Mohamed Alabbar, the fund pledged to invest $500 million — half of Noon’s capital — and will be an active participant in its board.

The Saudi fund deepened ties with Alabbar, who is also chairman of Dubai’s largest real estate developer Emaar Properties PJSC, later that month when it took a 50pc stake in his investment vehicle Adeptio AD Investments SPC Ltd. Adeptio bought Kuwait Food Co., which operates KFC and Pizza Hut restaurants in the Middle East and North Africa.

Posco: The PIF’s investment in Korea’s Posco Engineering and Construction Co. was one of the fund’s first overseas deals. The fund paid $1.1bn for a 38pc stake and got the right to appoint two board members.

At home: Domestically, the PIF has listed assets worth about $106bn, including stakes in companies such as Saudi Basic Industries Corp., the world’s second-biggest chemicals manufacturer, and National Commercial Bank, the kingdom’s largest lender. In addition the fund owns about 60 private companies, Alrumayyan said at the Riyadh conference.

The fund’s assets totalled 587bn riyals ($157bn) at the end of June 2016, according to the prospectus for the government’s $9bn Islamic bond sale published in April. The transfer of about $27bn from the kingdom’s foreign reserves held at the central bank to the PIF was approved in November.

The government also plans to transfer ownership of many state assets to the fund while they are being privatised, including the Saudi stock exchange and flour mills.

The PIF is the main investor in a planned 334 square-kilometre sports and entertainment city that will be built south of Riyadh, the government said in April. The plans will include a safari area and a Six Flags Entertainment Corp. theme park.

— Bloomberg/The Washington Post Service

Published in Dawn, The Business and Finance Weekly, May 29th, 2017

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