Saudi Arabia’s ‘unprecedented growth’ set to cement position as M&A leader in 2022

saudi arabia is witnessing M&a activity across all sectors including healthcare, education, logistics, tourism, entertainment and sports. (SPA)
saudi arabia is witnessing M&a activity across all sectors including healthcare, education, logistics, tourism, entertainment and sports. (SPA)
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Updated 08 January 2022

Saudi Arabia’s ‘unprecedented growth’ set to cement position as M&A leader in 2022

Saudi Arabia’s ‘unprecedented growth’ set to cement position as M&A leader in 2022
  • “The Saudi market is probably one of the most active M&A markets in the region,” says financial expert
  • Vision 2030 is the “main driver” to the flurry of M&A activity in Saudi Arabia

RIYADH: Saudi Arabia has become one of the most attractive markets for international companies seeking new mergers and acquisitions, and it is set to maintain its position in 2022. 

The country’s growth stood at 6.8 percent for the third quarter. This is due to rising world demand for crude oil, ambitious Saudi Vision 2030 targets, cutting the Kingdom’s dependence on the sale of hydrocarbons through the development of non-oil sectors, as well as advances in fighting the COVID pandemic.

This has helped set Saudi Arabia for continued growth in merger and acquisitions in the coming year. 

“The Saudi market is probably one of the most active M&A markets in the region, together with the UAE and Egypt,” said Fikry Younis, the Riyadh-based partner of Lumina Capital Advisers.

Economist Robert Mogielnicki from the Arab Gulf State Institute in Washington underlines that the most obvious spaces to watch for M&A activity in Saudi Arabia are the energy and technology spaces. 

“Saudi Arabia possesses a comparative advantage in the energy sector and really wants to monetize its energy assets. Technology firms are thriving globally, and Saudi Arabia is pushing to become a global technology hub,” he added.

According to Younes, Saudi Arabia is witnessing M&A activity across all sectors, with a focus in social infrastructure — including healthcare, education and logistics — tourism, entertainment and sports, Environmental, Social, and Governance investing and green energy. 

There is also significant action in technology which acts as an enabler to other sectors, such as healthtech, edutech, and fintech.

FASTFACTS

The country’s growth stood at 6.8 percent for the third quarter. This is due to rising world demand for crude oil, ambitious Saudi Vision 2030 targets, cutting the Kingdom’s dependence on the sale of hydrocarbons through the development of non-oil sectors, as well as advances in fighting the COVID pandemic.

The largest announced transactions this year were the acquisition of 49 percent stake in Aramco’s Oil Pipeline Co. by a consortium led by EIG Global Energy; the acquisition of an Aramco portfolio of gas assets by US-based Air Products and ACWA Power, and the acquisition of a 50 percent stake in Saudi National Petrochemical Company by the Saudi Industrial Investment Group.

Tourism is expected to account for more than 10 percent of Saudi Arabia’s gross domestic product by 2030 through Neom — a $500bn futuristic city including a nature reserve and heritage sites on islands on the Red Sea alongside a major entertainment and sports project called Qiddiya. 

The Kingdom plans to invest more than $1tn in the tourism sector over the next 10 years. 

For Habib Aoun, partner at Broadgate Advisers, if one looks at ranking by deal value, energy and materials remain the most buoyant sectors by far, driven by strategic acquisitions often involving governmental entities such as ARAMCO. 

However, looking at deal count, rather than deal size, demand is big for assets in the consumers, healthcare, education and ICT sectors, both from strategic as well as financial investors. 

“Saudi Arabia has always been and remains one of the main M&A markets in the region, driven by its large population, numerous government initiatives and the recent recovery in oil prices,” says Aoun. 

The expert estimates that in 2021, there were $44 billion of announced deals in the Kingdom, compared to $75 billion for the whole of the Middel East and North Africa region including Saudi Arabia.

The largest announced transactions this year were the acquisition of 49 percent stake in Aramco’s Oil Pipeline Co by a consortium led by EIG Global Energy; the acquisition of an Aramco portfolio of gas assets by US-based Air Products and ACWA Power, and the acquisition of a 50 percent stake in Saudi National Petrochemical Company by the Saudi Industrial Investment Group, according to Aoun. 

The Saudi British Bank, the HSBC Holdings affiliate, also completed its merger with Alawwal Bank. The year also saw the merger of National Commercial Bank and Samba Financial Group under the name of Saudi National Bank. SNB will be accounting for a market share of 25 percent, with a combined equity of SR120 billion ($31.96 billion)

Other than those large deals in the energy and materials sectors, there have been notable mid-cap deal activity including the sales of Naturepack Beverage Packaging to Norway-based Elopak; HSBC’s asset management business to Alawwal Invest;  Saudi Enaya Cooperative to Amana cooperative, and; Fourth Milling Co. to a consortium of Saudi strategic Agri investors. 

In education, King’s College Riyadh — an offshoot of the Dorset King’s College — became the first British boarding school to set up in Saudi Arabia. Additionally, Saudi Arabia’s Tourism Development Fund and London hospitality company Ennismore established a $400m fund to bring Ennismore’s lifestyle brands to the kingdom. 

“Mega deals like the merger between Samba-NCB as well as PIF acquisition of Newcastle United take all the publicity, however, there are many private deals of all sizes that are taking place below the radar,” says Younes. 

Without a doubt Vision 2030 is the main driver to the flurry of M&A activity in Saudi Arabia, says Younes. 

"One of the core pillars of Vision 2030 is localization of know-how. We have therefore seen many sub-industries across the wider manufacturing spectrum benefit from governmental initiatives — chemicals & materials, pharmaceuticals, etc. Other main sectors that are expected to benefit from Vision 2030 are infrastructure — including telecom, education, tourism — including F&B, and healthcare where investment is needed in order to support the anticipated economic growth. Covid did have an impact of course, mainly during H1 2020, but as is the case globally, most sectors have recovered well in 2021,” adds Aoun.

M&A activity in Saudi Arabia is both inbound and cross-border, agree specialists. 

One example is Saudi Arabian companies’ deals with their Omani counterparts worth $10 billion. 

“Within Saudi, investors and family offices are reviewing their portfolios and divesting from non-core assets to redirect funds to expanding core assets,” says Younes, adding: ”Cross-border is inbound and outbound where the key word is scaling in Saudi Arabia to capture the opportunities that are being presented as a result of Vision 2030. 

“International investors are investing inbound to Saudi in order to benefit from the unprecedented growth, especially with the challenges that many are facing in their home countries: COVID, supply chain challenges, inflation, etc. Local investors who are investing outbound are investing in order to bring expertise and capabilities from abroad to Saudi Arabia.” 

For Aoun, forecasts for M&A activity in the Kingdom are upbeat, driven by current oil price levels and the government’s continuous efforts to modernize the country and positioning Riyadh as the financial capital of the region.


Saudi Arabia’s public debt edges up at end of 1Q as new domestic debt exceeds repayment

Saudi Arabia’s public debt edges up at end of 1Q as new domestic debt exceeds repayment
Updated 10 sec ago

Saudi Arabia’s public debt edges up at end of 1Q as new domestic debt exceeds repayment

Saudi Arabia’s public debt edges up at end of 1Q as new domestic debt exceeds repayment

RIYADH: Saudi Arabia’s public debt increased by just over 2 percent to SR958 billion ($256 billion) at the end of the first quarter of 2022, according to a quarterly report from the Ministry of Finance. 

The increase in public debt — which stood at SR938 billion in the fourth quarter of 2021 — was driven by higher domestic issuances combined with lower principal repayments. 

The “issuances and borrowings” by the Kingdom during the first quarter of 2022 totaled SR52.6 billion, while the repayment of principal over the same period was SR32 billion.

HIGHLIGHTS

The increase in public debt — which stood at SR938 billion in the fourth quarter of 2021 — was driven by higher domestic issuances combined with lower principal repayments. 

Saudi Arabia’s real GDP grew 9.6 percent year-on-year in the first quarter of 2022, the highest growth rate in 10 years.

The Kingdom’s public debt-to-GDP ratio stood at 30 percent as of Dec. 31, 2021.

The public debt level is SR20 billion higher than that projected by Saudi-based Jadwa Investments, which expected it to stay at SR938 billion in 2022 and 2023, according to a research report issued earlier this week.

Jadwa revised upward the firm's projection for the Kingdom’s nominal gross domestic product growth in 2022 to 22.8 percent year-on-year from the previous February estimate of 10.9 percent.  As a result the firm is now projecting a lower 2022 public debt-to-GDP ratio of 24.4 percent compared to 26.4 percent previously.  

In February, Jadwa cited a recent statement by the National Debt Management Center that “the funding requirement in 2022 would mainly focus on refinancing SR43 billion of debt, although it would remain opportunistic by exploring additional debt raising activities, depending on market conditions.”

Though public debt increased in the first quarter of 2022, the rise in public debt-to-gross domestic product ratio at year-end is likely to be capped by the strong growth in nominal GDP projected for the current year.

Saudi Arabia’s real GDP grew 9.6 percent year-on-year in the first quarter of 2022, the highest growth rate in 10 years, according to the General Authority for Statistics. The increase was driven by a significant increase in oil activities.

 

The Kingdom’s public debt-to-GDP ratio stood at 30 percent as of Dec. 31, 2021, data compiled by Arab News shows.


India In-Focus — Shares fall; JPMorgan downgrades India’s IT sector; Central threatens to curb domestic coal supply

India In-Focus — Shares fall; JPMorgan downgrades India’s IT sector; Central threatens to curb domestic coal supply
Updated 4 min 26 sec ago

India In-Focus — Shares fall; JPMorgan downgrades India’s IT sector; Central threatens to curb domestic coal supply

India In-Focus — Shares fall; JPMorgan downgrades India’s IT sector; Central threatens to curb domestic coal supply

MUMBAI: Indian shares dropped 2 percent on Thursday, weighed down by a broader market selloff, as investors dumped risky assets on worries over stubborn inflation and economic slowdown.

The NSE Nifty 50 index was down 1.95 percent at 15,924, as of 0353 GMT, with all its major sub-indexes in the negative territory, while the S&P BSE Sensex fell 2.11 percent to 53,067.39.

JPMorgan downgrades India’s IT sector as pandemic boom fades

Soaring inflation, supply chain issues and the hit from the Ukraine war will bring an end to the growth boom India’s IT services industry enjoyed during the pandemic, JPMorgan analysts said on Thursday as they downgraded the sector to “underweight.”

The $194-billion sector whose software services helped businesses adapt to pandemic-era practices of online shopping and remote working is facing a demand slowdown this year as employees return to offices and the Russia-Ukraine war weighs on spending from clients in Europe.

“We see peak revenue growth behind us and EBIT margins trending down from inflation, mean reversion,” JPM said.

“While the bottom-up outlook remains positive from most Services, Software and SaaS names YTD, and the tech spending cycle remains buoyant structurally, we feel there are more downside risks to current earnings assumptions.”

The brokerage expects the slowdown to worsen in 2023 partly due to a potential decline in orders from the key market of the US, where economic growth has started to weaken.

It lowered Tata Consultancy Services Ltd, India’s top IT exporter, to “underweight” rating from “neutral” but stayed “overweight” on rival Infosys.

India threatens to curb domestic coal supply if utilities delay imports

India’s power ministry on Wednesday said it would cut domestic fuel supply to state government-run utilities by 5 percent if they do not import coal for blending by June 15, as officials struggle to address rising power demand.

A heatwave pushed power use to a record high in April, leading to the worst electricity crisis in more than six years and forcing India to reverse a policy to slash coal imports.

“If blending with domestic coal is not started by June 15, then the domestic allocation of the concerned defaulter thermal power plants will be further reduced by 5 percent,” the power ministry said in a statement.

It said state government-run utilities, most of which are debt-laden, will have to import more coal to fire their power plants due to reduced local supply if they delay placing orders and supplies do not arrive by June 15.

The power ministry has asked all utilities to ensure delivery of 50 percent of the allocated quantity by June 30, another 40 percent by end-August and the remaining 10 percent by the end of October.

(With input from Reuters) 


EU reveals $221bn plan to cut red tape and boost renewables: NRG matters

EU reveals $221bn plan to cut red tape and boost renewables: NRG matters
Updated 26 min 6 sec ago

EU reveals $221bn plan to cut red tape and boost renewables: NRG matters

EU reveals $221bn plan to cut red tape and boost renewables: NRG matters

RIYADH: The EU steps in once again with a new package aiming to boost renewables in favor of a clean future. Switzerland is also seen working on securing storage capacity ahead of winter. Meanwhile, America’s Caterpillar Inc is eyeing the energy transition as the main driver of the mining business as a whole. Other than that, Germany’s Uniper announced that it will continue importing natural gas from Russia for another decade. 

Looking through the bigger picture: 

·      The EU has revealed a $221 billion plan which aims to cut red tape and pave the way for renewables, Bloomberg reported.  The scheme also includes plans to ramp up liquified natural gas imports and lowering energy demand to reduce dependency on Russian supplies. Under the new plan, the EU wants to raise the renewables target to 45 percent of the bloc’s energy needs by 2030. 

·      Switzerland’s government and natural gas industry have announced that they will collaborate in an attempt to bolster storage capacity in nearby countries and guarantee additional supply sources before winter arrives, Reuters reported, citing the cabinet. This comes as the European country does not own any gas storage facilities. On top of this, gas constitutes an estimated 15 percent of the country’s overall energy consumption. 

Through a micro-lens:

·      American construction machinery and equipment firm Caterpillar Inc has announced that it believes that the energy transition will be a major driver for the mining business in the years to come. In the period between 2021 and 2024, the firm is targeting a global market with an accumulated worth of $5 trillion for energy transition-related infrastructure, Reuters reported, citing the firm’s CEO Jim Umpleby. 

·      German energy firm Uniper SE has announced that it will continue to import natural gas from Russia for another ten years despite Europe’s efforts to cut dependency on the country. This comes as the firm has contracts with Russian majority state-owned gas industry company Gazprom PJSC that is set to expire in the middle of the 2030s, Bloomberg reported, citing the corporation’s CEO Klaus-Dieter Maubach.


GE to build two wind turbines in Yanbu Industrial City by end of 2022: Head of GE Saudi Arabia

GE to build two wind turbines in Yanbu Industrial City by end of 2022: Head of GE Saudi Arabia
Updated 33 min 4 sec ago

GE to build two wind turbines in Yanbu Industrial City by end of 2022: Head of GE Saudi Arabia

GE to build two wind turbines in Yanbu Industrial City by end of 2022: Head of GE Saudi Arabia
  • Separately, GE signed a memorandum of understanding with Saudi Aramco and the Saudi Electricity Company to develop a roadmap toward hydrogen and ammonia neutralization for power generation

DAMMAM: General Electric is set to build two wind turbines in Yanbu Industrial City, with a total capacity of 800 megawatts by the end of the year.

Yanbu is a port city on the Red Sea coast of western Saudi Arabia and hosts major downstream oil and petrochemicals facilities.

The area is managed by the Royal Commission for Jubail and Yanbu.

GE said it plans to accelerate its renewable production of wind turbines and hybrid battery storage, as well as solar and hydrogen-related products, in line with the Saudi green initiative.

The US-based engineering giant is also a leading manufacturer of gas turbines, which work to limit carbon emissions.

 

“GE has a record of efficient gas turbines, which we were able to achieve with our technology development,” said Hisham Albahkali, the president of GE Saudi Arabia and Bahrain, in an exclusive interview with Arab News. “We have been able to reach the optimum efficiency, which gives less pollution and less carbon.”

Albahkali explained how the firm aims to optimize the output of its gas turbine production.

He said: “Gas turbines work on fossil fuel, but the idea is to burn hydrogen. So, the output of the gas turbine won’t be combined with hydrocarbons.”

Separately, GE signed a memorandum of understanding with Saudi Aramco and the Saudi Electricity Company to develop a roadmap toward hydrogen and ammonia neutralization for power generation and carbon capture on May 16.

“We have provided Aramco and SEC with one wind turbine each, and we are participating in several solutions with them for batteries,” Albahkali added on the sidelines of the MoU signing ceremony.

FASTFACT

SME focus

GE has enrolled around 200 local SMEs into workshop units to help them meet global energy standards.

“Human capital is important for us,” Albahkali said.

GE celebrated its 130th anniversary in April and has operated in the Kingdom for 90 years. 


Half of Gazprom’s 54 clients opened Gazprombank accounts, says Russia’s Novak

Half of Gazprom’s 54 clients opened Gazprombank accounts, says Russia’s Novak
Updated 19 May 2022

Half of Gazprom’s 54 clients opened Gazprombank accounts, says Russia’s Novak

Half of Gazprom’s 54 clients opened Gazprombank accounts, says Russia’s Novak

Half of Russian gas giant Gazprom’s 54 clients have opened accounts at Gazprombank, Deputy Prime Minister Alexander Novak said on Thursday, as Moscow seeks to compel its clients to pay for its gas in roubles.

Russia halted gas supplies to Bulgaria and Poland in April after they refused to meet its demand that European buyers start paying for Russian gas in roubles, raising fears that other states could be next.

Finland’s state-owned energy provider Gasum refused to switch to the new scheme and said this week it would take its dispute over rouble payments with Russia’s Gazprom Export to arbitration proceedings.

Novak told a forum on Thursday that some big companies had already paid for Russian gas under the new scheme and that Moscow would soon know definitively which companies paid and which refused to do so.

“Gas payments under main contracts are due ... and there is information that some big companies already opened accounts, paid (gas bills) and are ready to pay on time,” Novak told a forum. “In the next couple of days we will see a final list of who’s paid in roubles and who’s refused.”

Nearly all the supply contracts EU companies have with Gazprom are in euros or dollars and some top Western companies have already opened accounts at Gazprombank.