Saudi Public Investment Fund looks for more global alliances

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Public Investment Fund Managing Director Yasir Al-Rumayyan pictured at the Future Investment Initiative in Riyadh. (AFP)
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Updated 25 October 2017
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Saudi Public Investment Fund looks for more global alliances

RIYADH: Saudi Arabia’s Public Investment Fund (PIF) is looking for further international partnerships as part of its ambitious aim to become the largest sovereign wealth fund in the world.
Yasir Al-Rumayyan, PIF managing director, said that global investment alliances would be a central part of a four-legged strategy.
He was speaking as PIF formally announced a $20 billion alliance with the US investment fund BlackRock to put money into what he called “conventional investment” like infrastructure and large-scale construction projects, and on top of the $45 billion agreed with Japan’s SoftBank.
“We will continue to see partnerships with the rest of the world, and conventional investments will not go away,” he said at the opening session of a major conference hosted by the PIF in Riyadh, the Future Investment Initiative.
He added that PIF is targeting annual returns of between 3 and 9 percent across its portfolios in the long term.
“PIF is a long-term fund. We are looking beyond cyclicality,” he said.
Al-Rumayyan spelled out the rest of the strategy. “We want to grow and diversify revenue across all investments. We want to localize the economy of Saudi Arabia for the future employment of citizens, and we want to expand in new sectors, like waste management, real estate and entertainment.”
Panelists included the CEO of Saudi Aramco, Amin Nasser, BlackRock Chairman Larry Fink, IMF Managing Director Christine Lagarde and Victor Chou, CEO of First Eastern Investment Group.
They were quizzed on their outlook for investment returns as individuals and states worldwide grapple with how to ensure sufficient retirement funds during an extended period of low growth across global economies.
Al-Rumayyan said that some assets could reach annual returns in the low teens.
“We don’t want to be a sitting duck to be shot down by only being in conventional investments. We want to go beyond — that is what Vision 2030 is all about,” he said.
He also revealed that he wants the Future Investment Initiative to become an annual event, which would help the Kingdom prepare for the future.
Questioned on the long-term prospects for the oil economy in the face of the renewable and alternative fuels industry, Nasser said it would take decades for the oil and gas industry to be significantly affected by these changes.
BlackRock’s Fink warned: “Long-term growth rates are decelerating quite rapidly and this is going to  present pension funds with bigger liability issues  —  but this is also one of the reasons we have to address this issue of retirement today with expected returns — whether it’s 4, 6 or 8 (percent).
“It means you have to put money away sooner to get to the expected pool of money you want in retirement.”
Asked about his own forecasts for what was possible and realistic as an investment return, he said: “The BlackRock Investor Institute came out with a 10-year forecast of 4 per cent with a balanced portfolio. I tend to think it will be closer to 6 percent.  We’re in a world of low inflation.”
Hundreds of the biggest names in global business are attending the event in Riyadh, which concludes tomorrow.


UAE companies challenged by debt and rising interest rates

Updated 24 min 5 sec ago
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UAE companies challenged by debt and rising interest rates

  • Debt restructurings on the rise, but below crisis levels
  • Central Bank of the UAE has raised interest rates four times since last March

There has been an uptick in recent months in heavily-borrowed companies in the UAE seeking to restructure their debts with lenders. Although the pressure on companies is not comparable to levels witnessed in the country following the 2008 global financial crisis, rising interest rates will eventually begin to have a greater impact, say experts.
Speaking exclusively to Arab news, Matthew Wilde, a partner at consultancy PwC in Dubai, said: “We do expect that interest rate increases will gradually start to impact companies over the next 12 months, but to date the impact of hedging and the runoff of older fixed rate deals has meant the impact is fairly muted so far.”
The Central Bank of the UAE has raised interest rates four times since the start of last year, in line with action taken by the US Federal Reserve. The Fed has signalled that it will raise interest rates at least twice more before the end of the year.
Wilde added that there had been a little more pressure on company balance sheets of late, although “this shouldn’t be overplayed”.
Nevertheless, just last week, Stanford Marine Group — majority owned by a fund managed by private equity firm Abraaj Group — was reported by the New York Times to be in talks with banks to restructure a $325 million Islamic loan. The newspaper cited a Reuters report that relied on “banking sources”.
The Dubai-based oil and gas services firm, which has struggled as a result of the downturn in the hydrocarbons market since 2014, has reportedly asked banks to consider extending the maturity of its debt and restructuring repayments, after it breached certain loan covenants.
A fund managed by Abraaj owns 51 percent of Stanford Marine, with the remaining stake held by Abu Dhabi-based investment firm Waha Capital. Abraaj declined to comment.
Dubai-based theme parks operator DXB Entertainments struck a deal last month with creditors to restructure 4.2 billion dirhams (SR4.1 billion) of borrowings, with visitor numbers to attractions such as Legoland Dubai and Bollywood Parks Dubai struggling to meet visitor targets.
Earlier this month, Reuters reported that Sharjah-based Gulf General Investment Company was in talks with banks to restructure loan and credit facilities after defaulting on a payment linked to Dh2.1bn of debt at the end of last year.
Dubai International Capital, according to a Bloomberg report from December, has restructured its debt for the second time, reaching an agreement with banks to roll over a loan of about $1 billion. At the height of the emirate’s boom years, DIC amassed assets worth about $13 billion, including the owner of London’s Madame Tussauds waxworks museum, as well as stakes in Sony and Daimler. The firm was later forced to sell most of these assets and reschedule $2.5 billion of debt after the global financial crisis.
Wilde told Arab News: “We have seen an increasing number of listed companies restructuring or planning to restructure their capital recently — including using tools such as capital reductions and raising capital by using quasi equity instruments such as perpetual bonds.”
This has happened across the region and PwC expected this to accelerate a little as companies “respond to legislative pressures and become more familiar with the options available to fix their problems,” said Wilde.
He added that the trend was being driven by oil prices remaining below historical highs, soft economic conditions, and continued caution in the UAE’s banking sector.
On the debt restructuring side, Wilde said there had been a “reasonably steady flow of cases of debts being restructured”.
However, the volume of firms seeking to renegotiate debt remains small compared to the level of restructurings witnessed in the aftermath of Dubai’s debt crisis.
Several big name firms in Dubai were caught out by the onset of the global financial crisis, which saw the emirate’s booming economy and real estate market go into reverse.
State-owned conglomerate Dubai World, whose companies included real-estate firm Nakheel and ports operator DP World, stunned global markets in November 2009 when it asked creditors for a six-month standstill on its obligations. Dubai World restructured around $25 billion of debt in 2011, followed by a $15 billion restructuring deal in 2015.
“We would not expect it to become (comparable to 2008-9) so barring some form of sharp external impetus such as global political instability or a protectionist trade war,” said Wilde.
Nor did he see the introduction of VAT as particularly driving this trend, but rather as just one more factor impacting some already strained sectors (e.g. some sub sectors of retail) “which were already pressured by other macro factors.”