$27 Billion Injection Boost Saudi Arabia Wealth Fund

In order to accelerate dealmaking and lessen the country’s dependence on oil, Saudi Arabia is boosting the firepower of its sovereign wealth fund.

Increasing its existing assets by about 17 percent, the SPA official news agency said that the Public Investment Fund is receiving a 100 billion-riyal ($27 billion) transfer from official reserves. The statement said that the injection will help the fund diversify investments and revenues.

As the fund seeks to increase the proportion of foreign investments to 50 percent by 2020 from 5 percent, its dealmaking has quickened this year. It plans to put as much as $45 billion into a $100 billion global technology fund formed by Japan’s SoftBank Group Corp and acquired a $3.5 billion stake in taxi-hailing app Uber Technologies Inc. in June. The PIF, as it’s known, is intended to become the world’s largest sovereign wealth fund eventually, the kingdom wants.

“The government is aggressively pursuing its investment diversification plan. 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,” John Sfakianakis, director of economic research at the Gulf Research Center, said.

According to the statement, including “expected high yield opportunities in the local market that support private sector investments and promote economic growth and local contents,”, the PIF will focus on both domestic and international deals during the coming period.

The PIF most recently said that it’s taking a 50 percent stake in Dubai-based businessman Mohamed Alabbar’s investment vehicle Adeptio and the fund is led by ex-Saudi Fransi Capital banker Yasir Alrumayyan and has assets of about 600 billion riyals. A contribution of $500 million is also being made by the fund for Alabbar’s plan to create e-commerce firm Noon.

Proceeds from oil giant Saudi Arabian Oil Co.’s initial public offering and the transferring to the sovereign wealth fund the ownership of oil giant Saudi Arabian Oil Co. are also planned by Bottom of Form

Saudi Arabia. According to Deputy Crown Prince Mohammed bin Salman, the PIF will become the world’s biggest sovereign fund with assets of over $2 trillion once it takes ownership of the government’s stake in Saudi Aramco. Local listed companies including Saudi Basic Industries Corp. and Saudi Telecom Co. have about $100 billion of shares funded by the fund at present.

global investment banks to the kingdom are being attracted to Saudi Arabia due to the planned privatization of Saudi Aramco and other state-owned companies and the prospect of the PIF becoming more acquisitive. According to New York-based research firm Freeman & Co., in the first five months, fees paid to banks in Saudi Arabia jumped by almost a third to about $100 million.

JPMorgan Chase & Co. was a global coordinator on the kingdom’s $17.5 billion bond sale in October and advised the PIF on its investment in Uber.

According to the prospectus for the October bond sale, PIF received more than 20 billion riyals in dividends in 2015, mostly from its holdings of Saudi Arabian equities and doesn’t receive any funding through the government budget.

While Saudi Arabia funds a budget deficit that reached about 15 percent of gross domestic product last year, it is hurt by low oil prices and has drawn down foreign reserves and cut spending. According to the Saudi Arabian Monetary Agency, since August last year, foreign reserves held by the central bank have fallen $200 billion to $536 billion at the end of October.

(Adapted from Bloomberg.com)

Categories: Economy & Finance

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