Saudi Arabia’s sovereign wealth fund is seeking to use its financial muscle to lure international health and technology companies to set up operations in the kingdom.
The $400bn Public Investment Fund is “already in discussion with a number of companies in the health sector”, governor Yasir al-Rumayyan told the Financial Times.
It is holding talks with electric car start-up Lucid Motors, in which it invested $1.3bn to acquire a 67 per cent stake, to establish a manufacturing facility in the kingdom, and with “many” companies in SoftBank’s Saudi-backed $100bn Vision Fund, he said.
“The next step is to go forward in getting them to the kingdom,” Mr Rumayyan said.
Crown Prince Mohammed bin Salman has earmarked the PIF as central to grandiose plans to modernise the kingdom and create new industries that reduce dependency on oil, with the aim to hit $1tn in assets under management by 2025. But the kingdom has struggled to attract foreign investment outside the energy sector.
The fund has pledged to spend $40bn in the domestic economy annually over the next five years.
As it focuses more at home, Mr Rumayyan said the fund’s international exposure would come down to about 20 per cent of assets under management during the next five years, from nearly 30 per cent after it poured at least $7.7bn into US and European stocks in the first quarter of last year to take advantage of the market volatility. Still, in absolute terms, foreign investments will continue to grow, he said.
Analysts have questioned how the PIF will be able to finance its vast commitments, particularly as Saudi Arabia has been hit by the coronavirus pandemic and low oil prices.
But Mr Rumayyan said funding would come from a combination of loans, dividends from its holdings, government cash injections and the privatisation of Saudi companies it owns, beginning as early as this year.
Last year, the PIF received $40bn from the central bank’s foreign reserves, and was the main beneficiary of the December 2019 stock market listing of oil company Saudi Aramco, which raised $29bn by releasing just a small slice into public hands.
Mr Rumayyan said Riyadh might consider listing more shares in Saudi Aramco “if the valuation is right”, and that the state oil company itself was considering a “massive” programme of asset divestments.
“Historically speaking, [Saudi Aramco] used to do everything themselves . . . they had their own airports, their own fleets, their own pipelines,” he said. “Now if it makes sense for us to divest some of these assets, we’re definitely going to do it. It could include anything except the main operations.”
Mr Rumayyan, who is also chair of Saudi Aramco, said the PIF would need additional government cash injections, but insisted that would happen only when the central bank’s reserves, which fell to about $444bn in the middle of last year, were replenished.
He also rejected concerns that Saudi Aramco, which has been the bedrock of the economy, was in danger of becoming a cash machine for the sovereign wealth fund.
“We have governance in both companies . . . The PIF way will never allow one party to put the pressure on the other one,” he said.
As part of its effort to diversify the economy, the PIF has established more than 30 domestic companies over the past three years, in sectors from defence to waste recycling. It is also overseeing the development of three so-called “giga-projects” — Neom, a futuristic $500bn “mega city” development, Qiddiya, a more than $15bn sports and entertainment complex, and a high-end Red Sea tourism project expected to cost at least $10bn.
But it has drawn criticism that it is crowding out the private sector by dominating the domestic economy.
“They are increasing the risk and the leverage of the state to the detriment of the private sector, it’s becoming a state enterprise,” said a Gulf analyst. “They think the solution to Saudi Arabia’s problems is the PIF but it has not been proven yet.”
However, Mr Rumayyan insists the PIF has been nurturing the private sector. “We are paving the way for them to come in,” he said.