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
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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.


Iran looms large over OPEC summit

Updated 22 September 2018
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Iran looms large over OPEC summit

  • Saudi Arabia only country in Mideast, and perhaps world, with enough capacity to keep market supplied, say experts
  • At Algiers, Opec and leading non-Opec countries are expected to discuss how to allocate supply increases to offset a shortage of Iran supplies

LONDON: The Opec summit in Algiers on Sunday meets amid widespread fears of a supply crunch when a forecast 1.4 million barrels a day of crude is lost from Iran in November when US sanctions kick in.
If, on top of that, more supply shocks hit the market in worse-than-expected disruption from Libya and Iraq, the price of crude could surge, said Andy Critchlow, head of energy news at S&P Global Platts. “At the moment, the market looks finely balanced,” he said.
There isn’t a lot of slack in the system. As Critchlow points out: “Upstream investment in infrastructure and new wells is historically low and it will take a long time to turn that around.”
At Algiers, Opec and leading non-Opec countries are expected to discuss how to allocate supply increases to offset a shortage of Iran supplies. The gathering comes after a tweet by President Trump on Sept. 20 calling on Opec to lower prices. He said on Twitter that “they would not be safe for very long without us, and yet they continue to push for a higher and higher oil price.”
Critchlow reckoned KSA still had spare capacity of about 2 million bpd. And KSA would get oil back as they go into winter as it had needed 800,000m bpd merely to generate electricity for the home market to meet heightened demand for air conditioning in the summer.
But there is uncertainty about what will come out of Algiers. For a start, the Iranians say they will not attend. That could be tricky in terms of an Opec communique at the end of the meeting as statements need unanimous support from member nations. And Iran has indicated it will veto any move that would affect Iran’s position, ie, one where other countries absorb its market share as sanctions bite.
Jason Gammel, energy analyst at London broker Jefferies, said: “The magnitude of the drop in Iranian exports is likely to be higher than any hit in demand as a result of problems linked to emerging market currencies, or trade wars. That’s why we expect oil prices to continue to strengthen. The Saudis and their partners will keep the market well supplied, and I think the issue is that the level of spare capacity in the system will be extremely low. Any threat or interruption will mean price spikes. Possibly by the end of the year demand will exceed supply; for now, the market remains in balance, but threats of supply disruption will bring volatility.”
Under the spotlight in Algiers is a production cuts accord forged by Opec and 11 other countries in 2016 which has been extended to the end of this year. The agreement helped reboot prices and obliterate inventory stockpiles that led to the crash in crude prices nearly three years ago. But how long will the agreement last? Algiers may kick that one into the long grass.
Thomson Reuters analysts Ehsan Ul-Haq and Tom Kenison told Arab News: “OPEC members would like to maintain cohesion within the group around supply ahead of Iran sanctions and declining Venezuela production, However, they are expected be in favor of maintaining stability in prices while doing so. On the other hand, they need to find a consensus around how their market share would be affected by a decision to pump more oil in the market. Any decision around production will likely be offset until the November meeting.”
Critchlow said that it is what KSA and Russia say and do that matters. “They speak for a fifth of the global oil market, producing a combined total of 22m bpd.” Together, they are the swing producers when it comes to crude production and supply.
Another factor about Algiers is that it is a meeting of the Joint Ministerial Monitoring Committee, which is not a policy-making forum. Big policy statements may have to wait for the main Opec summit in Vienna at the end of year. That said, there will be some very high-level delegations in Algiers, including the Saudi oil minister and his Russian counterpart.
A statement about the demand picture could emerge, especially as there are fears about the impact on the global economy from the US-China tariff war.
Looking to the future, Critchlow thought the Opec production cuts accord would carry on into 2019. “Oil priced between $70/bbl and $80/bbl is a sweet spot for Middle East producers. Its’s good for Saudi as it helps stop further drainage of their foreign reserves and moves the budget back toward balance. Do they want (the price) to go higher? I think that would cause a lot of political problems for them.”