Bahrain sovereign fund hopes to invest in Saudi Aramco IPO

Saudi Aramco plans to list around 5 percent of its stock on multiple exchanges next year. (Reuters)

ST PETERSBURG, Russia: Bahrain’s sovereign wealth fund Mumtalakat hopes to take part in the initial public offering (IPO) of shares in Saudi Aramco, the fund’s Chief Executive Mahmood Alkooheji told Reuters, predicting additional opportunities from the kingdom’s reform program.
Saudi Aramco plans to list around 5 percent of its stock on multiple exchanges next year with the aim of raising as much as $100 billion. That could value the firm at around $2 trillion.
“Everyone globally has his eyes (on Aramco) and the mind boggles when they talk of the Aramco IPO and the size of the IPO,” Alkooheji said in an interview in St. Petersburg.
Asked whether Mumtalakat was interested in participating, Alkooheji said: “Everyone in the whole globe will be interested. Let’s hope we can play a small part in the IPO.”
Mumtalakat, created in 2006 as an independent holding company for government-owned assets, manages Bahrain’s sovereign wealth while helping to diversify away from oil and gas. Its portfolio is valued at more than $7 billion.
Alkooheji was speaking on the eve of the June 1-2 St. Petersburg economic forum, at which business leaders from Russia and overseas gather every year.
The Saudi Aramco IPO is only part of a program of privatizations and reforms that was unveiled by Saudi Deputy Crown Prince Mohammed bin Salman.
Much of the plan envisions transferring responsibility for development projects and public services to the private sector. Alkooheji said the reforms would benefit the entire Gulf region besides providing investment opportunities.
“We are very close to Saudi Arabia and all these reforms coming from Saudi Arabia will have a very positive impact on Bahrain,” he said.
He highlighted health care, education and renewable energy as sectors showing the most promise. Mumtalakat has an equity stake in Italian health care provider KOS, which Alkooheji predicted could benefit from the greater private-sector emphasis.
Prince Mohammed has said that while the government was committed to providing medical treatment to its citizens, it would not necessarily manage hospitals, some of which may be sold.
Alkooheji praised Prince Mohammed’s reform program.
“A lot of people were doubting if he can achieve it, but for me that’s not the issue. Now people have a direction to go to, people working for a common goal, and that’s a recipe for success,” he added.
Mumtalakat has an “impressive” pipeline of promising investment deals in Russia, with some existing projects already offering double-digit return rates, Alkooheji said.
Mumtalakat has worked closely with the state-backed Russian Direct Investment Fund (RDIF) in the past couple of years and currently has projects worth some $135 million in the country, Alkooheji said.
Mumtalakat’s Russian holdings include food retail chains Lenta and Magnit and most recently, last October, the fund participated in a consortium to invest in French glassware firm Arc which aims to expand production in Russia. RDIF was part of that group.
“We have a (deal) pipeline...so far the pipeline we have got is a very good and impressive pipeline,” Alkooheji said.
He cited Russia’s big population, its resources, and technological know-how as factors behind its promise.
"Even before the recent improvement in the Russian economy, our deals have been very positive, promising double digit IRR (internal rate of return)," Alkooheji said.
Russia has earned a reputation for poor corporate governance but Alkooheji said Mumtalakat, considered one of the most transparent SWFs, has found the RDIF to be highly credible.
Mumtalakat accounts for around 10 percent of all RDIF investments, he said adding: "In a couple of years we have gone from zero to $135 million quite fast."
Mumtalakat, which has a portfolio valued over $7 billion, sees healthcare, education and renewables as the most promising sectors globally, including in Russia, Alkooheji said.
The fund's original aim was to help Bahrain diversify away from the oil and gas sector through the production of high value-added goods and services.
While the majority of its holdings are in Bahrain, the fund has in recent years forayed overseas more frequently, with high-profile investments such as McLaren Formula One and Italian healthcare group KOS.
Alkooheji said annual investments were in the $250 million range in recent years and the fund also hopes to participate in the upcoming IPO of Saudi Aramco.
Investors are waiting to see its 2016 results, which are due soon. Its 2015 net profits fell 68.7 percent after low global aluminium prices forced Mumtalakat's domestic aluminum business to take an impairment.
Alkooheji said he expected good results for 2016, "much better" than for 2015. He added that its once-troubled Gulf Air holding had also now stabilised.
Mumtalakat differs from many Gulf-based SWFs, not only because of its relatively small size but also because it was not seeded with oil and gas export earnings. Instead the aim was to profitably run government stakes in local firms and diversify the economy - a model some developing countries such as Turkey are now trying to emulate.
While there has been scepticism about the Turkish SWF, Alkooheji called its creation "a very good move".
Asked if Mumtalakat would consider co-investing with the new fund in projects in Turkey, he said: "We would be happy to do that, we are in dialogue with them. So far we have not been successful (in identifying Turkish investments) but we will continue to try."