The Saudi investment king who no longer rules alone

  • The Saudi Wealth Fund bought nearly 17% of Prince Alwaleed Company
  • Sovereign fund likely to be an active investor – sources
  • The Public Investment Fund may benefit from Al-Waleed’s investment style – Analysts

DUBAI (Reuters) – The prince, the international face of Saudi business, may no longer be able to make all the decisions.

Over the years, Prince Alwaleed bin Talal, Saudi Arabia’s Warren Buffett, has made hundreds of millions of dollars by investing in companies from Citigroup (CN) to Uber (UBER.N) to Twitter (TWTR.N) with almost complete independence.

Informed sources said his investment firm Kingdom Holding (4280.SE) now considers Saudi Arabia’s Public Investment Fund a minority shareholder and the powerful sovereign wealth fund is unlikely to remain on the sidelines.

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Two sources familiar with the kingdom’s activities told Reuters that the wealth fund, which is at the heart of Crown Prince Mohammed bin Salman’s ambitious plan to diversify the Saudi economy, will want the kingdom’s investment committee to have more power over decision-making than in the past.

“(The Public Investment Fund) will want to be an active investor,” said an investor in a sovereign wealth fund in the Gulf. “Kingdom’s investment committee is basically nascent, and I can’t imagine the Public Investment Fund being at the prince’s whims.”

The Public Investment Fund, Kingdom Holding, and Prince Alwaleed and their spokesman declined to comment when contacted by Reuters about what a minority stake in the PIF would mean for future investments.

Al-Waleed, 67, has always maintained a tight grip on the kingdom’s shares, owning all but 5% of the shares traded on the Saudi stock market until the Public Investment Fund bought 16.87% of the shares for $1.5 billion last month.

The agreement came more than four years after Prince Alwaleed was swept up in an anti-corruption drive ordered by the crown prince and held for nearly three months at the Ritz-Carlton Hotel in Riyadh with dozens of royals, senior officials and businessmen.

Most of the detainees were released after financial settlements were reached, and Prince Alwaleed said in March 2018 that he had struck a secret and confidential deal with the government.

It was not clear if the PIF purchase was related to the settlement. It’s a purely commercial deal, said a spokesman for Prince Al-Waleed, grandson of Saudi Arabia’s first King Abdulaziz and Lebanon’s first prime minister, Riad Solh.

The Public Investment Fund deal was concluded at the lowest price for Kingdom Holding shares this year without a premium. Two sources familiar with the matter said that bankers who usually work with the Public Investment Fund or Al-Waleed were not involved in the deal.

“Change the method”

The Saudi state acquired direct controlling stakes in the businesses of some of the detained Saudi entrepreneurs in 2017, including the Bin Laden Construction Group and MBC Media Company, as part of the settlements securing their release.

However, analysts said the intervention in Kingdom Holding represented a shift in the Saudi government’s strategy, as other bets are owned by the Ministry of Finance and not the wealth fund.

“It’s an indication of a change of course,” said James Swanston, Middle East and North Africa economist at Capital Economics. “With the Public Investment Fund now owning the stake, it may now be seen as an investment opportunity.”

Jim Crane, a research fellow, said that the role of the Public Investment Fund is to earn sufficient income through investments to develop new sectors in the Saudi economy, while the Ministry of Finance is more the custodian of daily spending and is less strategic or concerned with risks. at the Baker Institute at Rice University.

One of the sources familiar with the Kingdom’s business said that Al-Waleed’s investment style focused on new opportunities that may be very profitable but involve risks, as well as looking at undervalued assets.

Jim Crane, author of Energy Kingdoms: Oil and Political Survival in the Persian Gulf, said the PIF is essentially buying a stake in Prince Alwaleed’s successful investment track. As long as Alwaleed proves he can still pick winners, the Saudis will benefit. . “

Al-Waleed rose to international prominence after making a hugely successful bet on Citigroup in the 1990s and was an early investor in Apple (AAPL.O).

The prince and the kingdom also made a joint investment of $300 million in Twitter in 2011 and increased its stake in 2015. Last month, he agreed to put up a now $1.89 billion stake in Elon Musk’s takeover deal, rather than cashing it in.

Succession

The two sources close to the kingdom said that while the PIF’s move could affect Prince Alwaleed’s ability to maneuver, Kingdom Holding would benefit from the sovereign wealth fund’s political and financial leverage when it comes to making deals.

Since becoming a more active investor in 2015, the sovereign wealth fund has taken some bold steps to raise its profile in the world of business and sports.

It acquired $3.5 billion in pre-listing Uber, invested $45 billion in Softbank’s inaugural technology fund, bought 80% of British football club Newcastle United last year, and disrupted the golf world with its new LIV league.

The Public Investment Fund now manages more than $600 billion in assets, although its investment history has been mixed.

It made huge profits from investing in electric car maker Lucid (LCID.O) prior to its listing, but its investment in Softbank has been more volatile as rising prices and geopolitical instability dent high-growth technology stocks.

The wealth fund supports the crown prince’s mega projects in his Vision 2030 economic diversification plan.

Real estate consultant Knight Frank estimates that projects to develop the emerging tourism industry in Saudi Arabia and other sectors, which include building a vast futuristic green city called NEOM worth $500 billion, is worth more than $1 trillion.

But Riyadh has struggled to attract as many foreign investors as hoped, and the Public Investment Fund can capitalize on Alwaleed’s ties to major players in the hotel industry thanks to his stakes in Four Seasons, as well as the Fairmont, Raffles and SwissĂ´tel chains.

Despite his prominent image, Al-Waleed remained close to his roots. He often heads deep into the Saudi desert, where he spends time with guests and meets tribesmen and their families.

Three sources said the fact that his son Khalid bin Alwaleed had made his own way, investing in technology, real estate, food manufacturing and plant-based chains through his company KBW Ventures and KBW Investments, has raised the question of succession.

A source from the world of finance said that the Public Investment Fund may propose a candidate nominated by the Emir for the successor of the fund.

“You take the prince out of the equation, it’s just a Saudi investment holding company,” the person said. “I don’t think a lot of these deals would be done without him.”

(dollar = 3.7518 riyals)

(This story is being paraphrased to add words dropped in paragraph 27)

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(Narrated by Hadeel Al-Sayegh and Saeed Azhar). Editing by David Clark

Our Standards: Thomson Reuters Trust Principles.

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