Saudi wealth fund bets big to remake oil-based economy

With the stock market listing of its national oil company stalled, Saudi Arabia is scrambling to boost the coffers of the sovereign wealth fund spearheading a plan to diversify its economy.

The Public Investment Fund had sought to raise billions of dollars through the initial public offering of Saudi Aramco to finance the kingdom's transformation from a petro-state to a tech-focused economy.

But with the flotation indefinitely postponed, the PIF is taking steps to boost its coffers with much-needed cash to finance a slew of non-oil investments.

"Much of the ambitious economic and social plan to diversify the Saudi economy, jump-start its private sector and create jobs for young people relies on the PIF as an orchestrator of economic growth," said Karen Young of the Arab Gulf States Institute in Washington.

"In fact, the PIF is so central to the government's growth strategy that finding resources to feed the PIF has become a national economic priority," she wrote in a report for the institute.

Pivoting the kingdom's economy away from oil is a key priority for Crown Prince Mohammed bin Salman.

When the Aramco IPO was proposed in 2016, Saudi officials had expected it would raise up to $100 billion to fund his reform agenda, based on a $2 trillion valuation of the state-owned company that many experts said was unrealistic.

With IPO efforts floundering, the PIF, which aims to raise its assets from roughly $230 billion to more than $2 trillion by 2030, is aggressively pushing a host of big-ticket investments -- from Uber to a planned $500 billion Neom mega city.

The fund also has invested in space tourism company Virgin Galactic and pledged tens of billions of dollars to funds run by SoftBank and Blackstone.

'Spend to grow'

Some analysts have voiced concern over the PIF's "spend to grow" strategy as it pursues what are seen as flashy deals rather than long-term investments that deliver secure returns and generate jobs as unemployment soars.

"The PIF's pattern of investment very much resembles that of a venture capital fund and that is concerning for a fund that will, by necessity, have to generate steady returns in the long run," said Ellen Wald, author of the book "Saudi Inc".

Since 2016, the PIF has made external investment commitments worth 360 billion riyals ($95 billion), according to the International Monetary Fund, including stakes in high-risk tech firms such as electric car company Tesla.

"Investments in technology companies will not transform Saudi Arabia's economy nor will they diversify the economy's sources of revenue away from oil," Wald said.

The PIF did not respond to requests for comment.

Meanwhile, the postponement of the Aramco IPO is seen as a reflection of the kingdom's stronger fiscal position following a recent rise in oil prices but also dimming optimism over reforms.

"The postponement of the IPO implies that the economic diversification envisaged by the government will either need to be scaled back or financed by higher direct or indirect public-sector debt issuance," ratings agency Moody's said Monday.

Moody's noted that significant reliance on debt would increase liability risks and exert negative pressure on Saudi Arabia's credit profile.

Raising cash

The PIF last month raised an $11 billion loan from international banks, its first commercial advance, in order to finance the kingdom's transformation plans, the Riyadh-based Al Rajhi Capital said this week.

"If the PIF is to fulfil its ambitious plans in the coming years, it will need additional financing," the IMF said in a recent report.

For some investments, it said, the government may need to draw from its reserves at the Saudi Arabian Monetary Authority, which stand at just over $500 billion.

To raise money, the PIF is mulling the sale of a "strategic stake" in Saudi petrochemicals giant SABIC to Aramco.

SABIC, the world's fourth largest petrochemicals company with a market value of over $100 billion, is 70% owned by the PIF.