KSA thinks big

RIYADH: As part of a plan for a post-oil economy, the Kingdom is going to create a $2 trillion sovereign wealth fund into which it will place the country’s most valuable assets, including national oil company Saudi Aramco.

This was announced by Deputy Crown Prince Mohammed bin Salman, second deputy premier and defense minister, in a five-hour interview with Bloomberg published on Thursday.
The deputy crown prince said the size of the Public Investment Fund (PIF) would eventually help wean the Kingdom away from oil. As part of the strategy, the prince said the Kingdom would partially privatize Aramco and transform the oil giant into an industrial conglomerate. 
“Undoubtedly, it will be the largest fund on earth,” he said. “This will happen as soon as Aramco goes public. The initial public offering (IPO) could happen as soon as next year, with the country currently planning to sell less than 5 percent,” he was quoted as saying.
He said the Aramco IPO and the transfer of its shares to the PIF would “technically make investments the source of Saudi government revenue, not oil.” 
He added: “What is left now is to diversify investments. So within 20 years, we will be an economy or state that doesn’t depend mainly on oil.” The sale of Aramco is planned for 2018 or even a year earlier, he said. 

The fund will then play a major role in the economy, investing at home and abroad. “It would be big enough to buy Apple Inc., Google parent Alphabet Inc., Microsoft Corp. and Berkshire Hathaway Inc. — the world’s four largest publicly traded companies.”
Prince Mohammed, who leads the Kingdom’s military efforts and also oversees ministries including finance, oil and the economy through the Council for Economic and Development Affairs, said the wealth fund already holds stakes in companies including Saudi Basic Industries Corporation, the world’s second-biggest chemicals manufacturer, and National Commercial Bank the Kingdom’s largest lender.
The PIF ultimately plans to increase the proportion of foreign investments to 50 percent of the fund by 2020 from 5 percent now, said Yasir Alrumayyan, secretary-general of the fund’s board.
The fund is looking at “two opportunities outside Saudi Arabia” in the financial industry, the prince said, declining to name the possible acquisition targets. “I believe that we will conclude at least one of them.”
It has already started to become more active abroad. In July, the PIF acquired a 38 percent stake in South Korea’s Posco Engineering & Construction Co. for $1.1 billion and the same month agreed to a $10 billion partnership to invest in Russia with the Russian Direct Investment Fund.
“We’re working now on different fronts,” he said. “Now the government is transferring some of its assets, lands, some of the companies to us. We have different projects in tourism and in new industries that are untapped in Saudi.”
Saudi Aramco has a refining capacity of around 5.4 million barrels a day through its ownership of domestic and foreign joint ventures, and is aiming to almost double it to between 8 million and 10 million.
He pointed to two other expansion areas for Aramco: petrochemicals and engineering. “We could create a huge construction company under Aramco that will also be offered to the public and that services projects other than Aramco’s projects in Saudi Arabia.
He said Aramco would continue to grow through investments in the refining industry in countries including China, India, South Africa and Indonesia. 
“We’re also targeting the US market including the recent deal we’ve made with Shell,” the prince said.
The prince said that the country is taking measures to deal with less revenue after the fall in oil prices. “We are working on increasing the efficiency of spending. The government used to spend up to 40 percent more than allocated in its budget and that was whittled to 12 percent in 2015.”
Meanwhile, Prince Mohammed said that Saudi Arabia would only freeze its oil output if Iran and other major producers do so, challenging the country’s main regional rival to take an active role in stabilizing the over-supplied global crude market.
“If all countries including Iran, Russia, Venezuela, OPEC countries and all main producers decide to freeze production, we will be among them,” he said.
The prince said that Saudi Arabia was ready to weather the oil crisis by reforming its economy. “I don’t believe that the decline in oil prices poses a threat to us,” he said, adding that a rise in prices, while having budgetary benefits for the Kingdom, was also a “threat to the lifespan of oil.”
Prince Mohammed suggested prices would rise over the next two years as demand continues to increase, but he made clear Riyadh has very little appetite for the return of OPEC production management that molded the oil industry for 30 years.
“For us it’s a free market that is governed by supply and demand and this is how we deal with the market,” he said.