By : Mohamed Samir
Saudi Arabia’s sovereign wealth fund, the Public Investment Fund (PIF) spearheads the kingdom’s economic transition from a dependence on oil to a more diversified base. The fund, chaired by Crown Prince Mohammed bin Salman plays an key role in the prince’s vision to transform the kingdom’s economy, attracting foreign investment, creating a tourism industry, and attracting international residents to live in new Saudi cities.
To realize these goals, the Crown Prince used funds from the majority state-owned oil company, Saudi Aramco, to build a erect economy through the PIF. The oil giant, is one of the world’s largest company’s.
On May 19th, the Saudi sovereign wealth fund sold it’s stake in Canada’s Suncor Energy. The Kingdom sold a total of 51 million shares in the oil producers, worth around 1.2 billion Canadian dollars, according to the company’s stock market filing.
Suncor Energy’s filing to the Canadian Security and Exchange Commission (SEC), showed that the PIF no longer holds any shares in the company.
The smart move came after the PIF bough the Suncor stakes in 2020, following the global oil and marker crash, which brought the share prices of oil companies to extremely low levels. At the time, the Saudi sovereign wealth fund bought 2% stake in Suncor, in addition to a 2.6% stake in Canadian Natural Resources.
This made the Saudi PIF one of the top 15th shareholders in Suncor, and the 8th top shareholder in the Canadian Natural Resources company according to the Bloomberg’s data.
PIF is the backbone of Saudi Arabia’s economic transformation plan. Through the acquisition of stakes of largest global companies as markets nosedived during the onset of the pandemic last year, and then sold them a few months later as stocks soared.
The move did not come in a vacuum, it is part of a strategy of building positions in tech company’s and especially ones in the video games industry. The Crown Prince is believes in the importance of video games and new technologies.
Nevertheless, the PIF also plays an integral role in cushioning the impact of the novel coronavirus (COVID-19) pandemic on the Saudi economy, as it recently revealed it will use an $40 billion to boost the post-pandemic economy.
According to the fund’s spokesperson, the $40 billion stimulus would come from the Saudi Arabian Monetary Authority reserves. The stimulus would pave the way for the PIF to exploit several investment opportunities both domestically and globally at competitive prices.
He revealed that the fund would prioritize investments in the most promising sector in terms of economic growth and value creation, to lead the Kingdom’s post-pandemic recovery.
That’s not the fund’s first move since the coronavirus pandemic started, PIF has invested more than $7.7 billion building a diverse portfolio of stakes in some of the top corporates across the globe.
The list includes, Uber, Facebook, Boeing, Disney, Activision Blizzard, and Marriott International. Additionally, Saudi sovereign wealth fund also holds stakes in several oil companies Shell, Total and BP, as well as global lenders such as Citigroup and Bank of America.
Saudi Arabia’s PIF has increased its US stock holdings to $15.4 billion in the first quarter (Q1) of 2021, up from around $12.8 billion at the end of 2020, according to a US regulatory filings.
The Kingdom’s sovereign wealth fund purchased 2.9 million class A shares in SoftBank Group-backed Coupang Inc, with $141 million of investments.
Moreover, PIF more than doubled its stake in the gaming giant, Activision Blizzard to 33.4 million shares compared to 15 million shares at the end of the Q4 of 2020, which led it to a $3.1 billion exposure from $1.4 billion.
The fund also expanded its shares in another video game company, Electronic Arts Inc to reach 14.2 million, worth around $1.9 billion, compared to $1.1 billion position at the end of the Q4 of 2020.
According to Rachna Uppal, the director of research at Azure Strategy, the Public Investment Fund utilized the current bullish sentiment in US equity markets to expand its portfolio.
She added that the PIF investments are in line with the Kingdom’s moves towards achieving the goald of the Saudi Vision 2030, which can be seen in preferring investments into sectors such as technology, mobility, and especially future mobility, tourism and entertainment.
The PIF’s stock holding in Uber Technologies has also increased to about $4 billion in Q1 2020, compared to $3.7 billion in Q4 2020, as the ride-hailing company’s shares gained value during the period.
The Saudi sovereign fund was one early backers in the ride-hailing company, as it purchased a $3.5 billion stake in Uber in 2016, three years before its IPO in 2019.
Governor of the Saudi Public Investment Fund Yasir Al-Rumayyan revealed in early 2021, that the fund will invest one trillion riyals over the next five years in several projects.
“The Public Investment Fund is among the fastest growing sovereign funds, and it has become a fundamental pillar for the sustainability of the Saudi economy,” Al-Rumayyan said at the regular government communication conference.
Al-Rumayyan referred to the development of 8 strategic pillars that were divided into 3 axes: investment, value creation and institutional, with a focus on local investments.
He added that financing the new investments comes from the fund and the assets granted by the government, as spending on new projects will reach 250 billion riyals annually.
He said that the fund is one of the largest and fastest growing sovereign funds in the world, and it is a pivot factor in achieving the Kingdom of Saudi Arabia’s Vision 2030.
According to the new strategy, the fund will work in the coming years on several goals, the most important of which are: Pumping at least 150 billion riyals annually into the local economy, incrementally until 2025, and contributing through its subsidiaries to the non-oil GDP of 1.2 trillion Saudi riyals, cumulatively.
PIF backbone of Saudi economy
Saudi Crown Prince Mohammed bin Salman said in early 2020 that the Public Investment Fund will expand its assets under management by more than 100% to around 4 trillion riyals ($1.1 trillion).
PIF’s assets under management recorded around 1.5 trillion riyals by the end of 2020, the Crown Prince has revealed.
He added that over the past few years the Saudi sovereign wealth fund has achieved remarkable economic and investments milestones, highlighting that the PIF has doubled its assets.
The Crown Prince placed PIF governor as the chairman of Saudi Aramco in September 2019, ahead of the company’s IPO, which indicates how the prince values the fund and want to ensure that it can get all the necessary funding it needs, according to Jean-François Seznec, a senior fellow at the Atlantic Council, a Washington D.C., think tank.
Prince Mohammed bin Salman has said in January 2021 that future Saudi Aramco public offerings will also mean more funding would be directed to the sovereign wealth fund.
During the Future Investment Initiative conference the Crown Prince said that Saudi Aramco will offer more stocks in the coming years, the prospects will be allocated to the sovereign fund and and re-invested domestically and globally.
According to the US-Saudi Business Council “The PIF receives its funding through four major sources: capital injections from the government, assets transferred to it from the government, loans and debt instruments, and returns on its investments and holdings. Other potential sources of funding include the sale of companies in its portfolio to the private sector and direct listings/initial public offerings (IPOs) of PIF companies on Tadawul.”
The council said that analysts expect Saudi Arabia to be a regional IPO leader in 2021, with more than 15 potential offerings planned.
The sovereign wealth fund also receives funding from the Saudi Central Bank. In 2020, the central bank transferred around $40 billion to the fund.
According to Seznec Saudi Aramco remains one of the sovereign wealth fund top funders, as the fund sold assets to Aramco. The oil giant bought the fund’s 70% stake in Saudi Basic Industries Corporation in June 2020 worth about $70 billion.
PIF domestic investments add value to Saudi economy
In January 2021, the Saudi sovereign wealth fund launched the Jeddah-based Cruise Saudi Company, in a bid to establish a strong Saudi tourism industry.
The PIF also established the Soudah Development Company which plans to attract two million annual visitors to the Kingdom and create 8,000 jobs by 2030, in the company’s luxury eco-resort in the mountainous Asir region.
Not only tourism, the PIF also invested in finance, renewable energy, and infrastructure, with a focus on digital-led projects.
Accordingly, the fund acquired a 50% stake in the e-commerce giant Noon, which launched in Saudi Arabia in 2017.
Concerning the energy and utilities sectors, the Saudi sovereign wealth fund established Tarshid (National Energy Services Company), the National Water Company, as well as the New Solar Energy Plan 2030. It also raised its stake in ACWA Power for renewable energy from 33.35% to 50%.
The fund also entered into mining sector, as it has a majority stake in the Saudi Arabian Mining Company (Ma’aden). In line with the Saudi 2030 Vision the PIF launched the Saudi Investment Recycling Company (SIRC) aiming to recycle 85% of the kingdom’s percent of the country’s industrial and hazardous waste by 2035.
SIRC aims to contribute $10 billion to the Saudi economy, attract $.16 billion of foreign investments, as well as create more than 23,000 new jobs.
The sovereign wealth fund plays an integral role in the Saudi defense industry as it owns the Saudi Arabian Military Industries (SAMI) and has added Saudi Information Technology Company (SITE, a cybersecurity firm) and The Helicopter Company (THC, a domestic helicopter manufacturer) to its defense/security holdings.
Public Investment Fund in eyes of credit rating agencies
International Credit rating agencies believes that the Public Investment Fund will play a major role in the Saudi Arabian economic recovery.
In a recent report, credit rating agency, Moody’s said that that PIF will boost investment spending in domestic projects and make up for the reduction in public budget capital spending.
The report explains that these investment would support economic diversification and joint private-public investments, as part of Saudi Vision 2030.
The Saudi sovereign wealth fund’s 2021-2025 strategy, it aims to spend at least $40 billion yearly on average on domestic projects, which makes up around 4.5% of Saudi Arabia’s projected GDP for 2021.
Similarly, Standards & Poor’s credit rating agency said that investments by Saudi Arabia’s Public Investment Fund will support credit growth among companies in the Kingdom.
The agency cited the fund’s investment plans as one of the drivers of the corporate credit growth, especially in the construction and construction-related sectors.
“This will offset the gradual lifting of government support aimed at easing the coronavirus pandemic economic impacts,” S&P said in a recent report.
Recently, the Saudi central bank said it had extended a deferred payment program to support private sector financing for an additional three months until June 30 as part of measures to cushion the negative economic repercussions of the pandemic.
It also said a guaranteed financing program had been extended for an additional year until March 14, 2022 to support small and medium enterprises.
Standard and Poor’s expected that domestic credit growth in Saudi Arabia, the biggest Arab economy, would stay strong in 2021 and the next year after a 14% year-on-year increase in 2020.
The credit rating agency said that this expected growth will be partially due to rising demand for housing from Saudi nationals, which has boosted mortgage growth.
“Over the next couple of years, we forecast that mortgage portfolios will expand by about 30% a year,” S&P added.