Saudi Arabia investing billions in global technology fund

A man looks at mobile phones at the SoftBank Group Corp.’s headquarters in Tokyo. (Reuters)
Updated 15 February 2017

Saudi Arabia investing billions in global technology fund

JEDDAH: Public Investment Fund (PIF) has taken another strong step in its mission to support Saudi Vision 2030 with its move to set up a strategic partnership with SoftBank Group Corp. (SBG), according to top businessmen and analysts. 
“This is a bold move by the PIF to explore global opportunities into tech ventures,” Basil Al-Ghalayini, CEO of BMG Financial Group, told Arab News.
His comments came as the PIF joined forces with Japanese telecom firm SoftBank to form a tech investment fund worth as much as $100 billion, making it one of the largest on the planet.
PIF — Saudi Arabia's sovereign wealth fund — is expected to put up as much as $45 billion of the money, with SoftBank throwing in at least $25 billion.
PIF, under the leadership of Deputy Crown Prince Mohammed bin Salman, has revised its long-term investment strategy to coincide with the country’s Vision 2030.
Saudi authorities have described SoftBank’s "strong investment performance" as a key reason for investing in the new tech fund.
Ihsan Bu-Hulaiga, head of the Joatha Consulting, told Arab News that the new fund reflects the implementation of PIF’s new strategy after restructuring and expanding its financial might from $160 billion to $2 trillion.
He said: “The engagement of PIF with SoftBank is more a meeting of mindsets than a mere financial collaboration.”
Bu-Hulaiga added: “In perspective, PIF compliments with SoftBank experience to provide benefits to highly selective global technology start-ups.” 
In a statement, SBG said it will use its deep operational expertise and network of portfolio companies in order to add value to the fund’s investments.
“Making such investments is critical for developing a stake in the most rapidly developing and transformative sector of the global economy,” a Gulf analyst, who declined to be named, told Arab News.
“The key is to build linkages that maximize the broader benefits for the Saudi economy. This is a positive beginning but what matters is all that is built around it: Partnerships, alliances, knowledge transfer, research, etc,” he added.
The SBG statement said the fund will be managed in the United Kingdom by a subsidiary of SoftBank Group Corp. and will deploy capital from SBG and investment partners.
SBG expects to invest at least $25 billion over the next 5 years. SBG has concluded a non-binding memorandum of understanding on Oct. 12, with the Public Investment Fund under which the PIF will consider investing in the Fund and becoming the lead investment partner, with the potential investment size of up to $45 billion over the next five years.
In addition, a few large global investors are in active dialogue to join SBG and PIF to participate in this fund. The overall potential size of the fund can go up to $100 billion, according to the SBG statement.
“The Public Investment Fund is focused on achieving attractive long-term financial returns from its investments at home and abroad, as well as supporting the Kingdom’s Vision 2030 strategy to develop a diversified economy. We are delighted to sign this MOU with SBG given the long history, established industry relationships and strong investment performance of SBG and Masayoshi Son,” the Saudi deputy crown prince was quoted as saying in the statement.
Masayoshi Son, chairman & CEO of SoftBank Group Corp., commented: “With the establishment of the SoftBank Vision Fund, we will be able to step up investments in technology companies globally. Over the next decade, the SoftBank Vision Fund will be the biggest investor in the technology sector. We will further accelerate the Information Revolution by contributing to its development.”
Rajeev Misra, head of strategic finance, SoftBank Group, is leading the fund project for SBG.
SBG has engaged former Deutsche banker Nizar Al-Bassam and ex-Goldman partner Dalinc Ariburnu for the project. PIF also had its own team of experts engaged.
Commenting on the tech investment fund, Sami A. Al-Nwaisir, chairman of Al-Sami Holding Group, told Arab News: “The PIF’s move is consistent with Saudi Vision 2030 in order to build the largest sovereign fund and, at the same time, increase the possibility of generating more revenues to the Saudi budget.”
The general role of the PIF is to function like a tool in framing fiscal policies in order to bring stability to the economy and provide liquidity, he pointed out.
Al-Ghalayini also said that the PIF’s partnership goes in line with the government's Vision 2030 program and plans to diversify revenue away from oil. 
“But with such a fund size of $100 billion, it will be worth watching where the fund plans to deploy this capital,” he said. 
“Furthermore, with such a supply into the Venture Capitals’ funding channels, valuations of target companies might go up,” he added. 
Economists say the PIF’s latest move strengthens Saudi Arabia’s ambitious plan to create a huge sovereign wealth fund that would be worth SR7 trillion ($1.9 trillion) by 2030, which would make it by far the biggest in the world.
PIF earlier invested $3.5 billion in US ride-hailing firm Uber.
At an annual rate of $20 billion, the new London-based fund could at current levels account for roughly a fifth of global venture capital investment, Reuters reported.
In the year to September, venture capital-backed companies globally raised $79 billion, according to data from KPMG and CB Insights, with tech start-ups attracting the lion's share of that cash.
“SoftBank Chairman Masayoshi Son is very good at looking for companies with big growth prospects, and that will create fierce competition," said Hiroyuki Kuroda, secretary general of the Venture Enterprise Center in Japan, was quoted as saying in the Reuters report.
SoftBank, a $68 billion telecommunications and tech investment behemoth, has also been stepping up investment in new areas. It agreed to buy UK chip design firm Arm Holdings in July in Japan's largest ever outbound deal.


Easy credit poses tough challenge for Russian economy minister

Updated 18 August 2019

Easy credit poses tough challenge for Russian economy minister

  • Measures being prepared to help indebted citizens; situation might blow up in 2021

MOSCOW: New machines popping up in Russian shopping centers seem innocuous enough — users insert their passport and receive a small loan in a matter of minutes.

But the devices, which dispense credit in Saint Petersburg malls at a sky-high annual rate of 365 percent, are another sign of a credit boom that has authorities worried.

Russians, who have seen their purchasing power decline in recent years, are borrowing more and more to buy goods or simply to make ends meet.

The level of loans has grown so much in the last 18 months that the economy minister warned it could contribute to another recession.

But it’s a sensitive topic. Limiting credit would deprive households of financing that is sometimes vital, and could hobble already stagnant growth.

The Russian economy was badly hit in 2014 by falling oil prices and Western sanctions over Moscow’s role in Ukraine, and it has yet to fully recover.

“Tightening lending conditions could immediately damage growth,” Natalia Orlova, chief economist at Alfa Bank, told AFP.

“Continuing retail loan growth is currently the main supporting factor,” she noted.

But “the situation could blow up in 2021,” Economy Minister Maxim Oreshkin warned in a recent interview with the Ekho Moskvy radio station.

He said measures were being prepared to help indebted Russians.

According to Oreshkin, consumer credit’s share of household debt increased by 25 percent last year and now represents 1.8 trillion rubles, around $27.5 billion.

For a third of indebted households, he said, credit reimbursement eats up 60 percent of their monthly income, pushing many to take out new loans to repay old ones.

Orlova said other countries in the region, for example in Eastern Europe, had even higher levels of overall consumer debt as a percentage of national output or GDP.

But Russian debt is “not spread equally, it is mainly held by lower income classes,” which are less likely to repay, she said.

The situation has led to friction between the government and the central bank, with ministers like Oreshkin criticizing it for not doing enough to restrict loans.

Meanwhile, economic growth slowed sharply early this year following recoveries in 2017 and 2018, with an increase of just 0.7 percent in the first half of 2019 from the same period a year earlier.

That was far from the 4.0 percent annual target set by President Vladimir Putin — a difficult objective while the country is subject to Western sanctions.

With 19 million people living below the poverty line, Russia is in dire need of development.

“The problem is that people don’t have money,” Andrei Kolesnikov of the Carnegie Center in Moscow wrote recently.

“This is why we can physically feel the trepidation of the financial and economic authorities,” he added. Kolesnikov described the government’s economic policy as something that “essentially boils down to collecting additional cash from the population and spending it on goals indicated by the state.”

At the beginning of his fourth presidential term in 2018, Putin unveiled ambitious “national projects.”

The cost of those projects — which fall into 12 categories that range from health to infrastructure — is estimated at $400 billion by 2024, of which $115 billion is to come from private investment.