Saudi Arabian Deputy Crown Prince Mohammed bin Salman outlined the Kingdom’s package of programmes over the coming four years to rebalance the Kingdom's balance sheet to boost non-oil income in an interview last week. The cornerstone of the package of programs is to restructure the Kingdom’s Public Investment Fund (PIF) into a Sovereign Wealth Fund which will be the biggest ever seen and in time will mean that Saudi could rely on investment income from the fund being greater than income from oil within 20 years.
The PIF is expected to be USD 2 trillion in size, big enough to buy the four largest companies in the US, Apple, Google, Microsoft and Berkshire Hathaway and still have USD 102 billion in the bank. The PIF would be funded by the selling of a stake in Saudi Aramco, the world’s largest oil company and then transferring the remainder of the company into the PIF alongside holdings in commercial and financial companies. The initial public offering for shares in Aramco will be as soon as next year, said the Prince.
Saudi Aramco has never published financial details but if we use a very conservative USD 10 per barrel for its reserves that puts its value around USD 2.5 trillion analysts say. The initial public offering could be the largest of all time dwarfing Alibaba, Facebook and Glencore. Based on the estimate of Aramco’s value the IPO could be USD 125 billion and of course the value will very much depend on what figure investors are willing to pay. The aim is to boost the Kingdom's non-oil income by USD 100 billion over the coming four years and would operate in addition to other measures such as cutting subsidies for household bills, taxes on consumers and a green card system for expatriates.
Saudi remains a strong seven star country under our NFA calculus and with moves as proposed and a quite constructive budget earlier in the year it won’t be long before S&P will have to think about possibly reviewing their two notch downgrade to A- earlier this year. As we say again and again a simple but seldom used concept, “only lend to those that have the ability to pay you back”.