Complex Made Simple

Aramco goes electric with Mazda, Saudi PIF goes Tesla: Here’s why

Not long after the Saudi Public Investment Fund (PIF) invested 5% of Tesla in a deal upwards of $2.7 billion, Saudi Aramco, whose shares are owned by the PIF, made another deal.

It partnered with carmaker Mazda and Japan’s National Institute of Advanced Industrial Science and Technology (AIST) on a research program developing fuel-efficient engines expected to be completed in 2020, according to Forbes Middle East.

We untangle the puzzle.

Related: Saudi Aramco raising billions to buy Sabic: Smart but will it work?

Electric avenues

As competition from electric cars looms, Aramco’s move comes as part of an effort to prolong the dominance of gasoline-powered engines by making them more cost-effective and efficient, as electric carmakers—such as Tesla—vie to upend the auto market.

“The state-owned oil giant will contribute to the project by providing new low carbon-content fuels,” it said in a statement.

Meanwhile, Mazda will develop a prototype engine based on its Skyactiv technologies, which the carmaker touts as being the foundation of its next generation of gasoline engines, Forbes reported.

Related: Can the GCC keep afloat without oil?

Creative financing

Saudi Asharq Al Awsat said today that Aramco has made new appointments starting September, quoting Bloomberg sources.

Khalid al-Dabbagh is to become senior vice president for finance, taking over from Abdallah al-Saadan.

Motassim al-Maashouq will become president of treasury, the sources told Bloomberg.

“However, it did not say if al-Maashouq will keep his post of vice president of IPO development in Aramco,” said the daily.

The new appointments come at an important stage for Aramco, which said last month that it is looking to buy a stake in petrochemical maker Saudi Basic Industries Corporation (SABIC).

Aramco is weighing tapping the international bond market for the first time to finance the acquisition of SABIC, people familiar with the talks told Bloomberg in July.

The move into global capital markets could offer an alternative to an initial public offering, it added.

Read: Houthi targeting Aramco is part of an organized terror campaign

The Financial Times (FT) said the PIF is scrambling for resources as it aims is to transform it into a global investment vehicle and raise its assets from $250bn under management to $400bn by 2020.

“In addition to Tesla, over the past two years, the PIF has bought stakes in ride-hailing app Uber and invested in space tourism company Virgin Galactic, while pledging tens of billions of dollars to funds run by SoftBank and Blackstone,” said FT.

“It was also due to be the main recipient of the $100bn that Riyadh expects to raise from the planned stock market flotation of Aramco, but as the IPO suffers delays, officials are looking for other sources of funding,” added FT quoting people familiar with the kingdom’s reform plans.

Aramco’s acquisition of the PIF’s 70 percent stake in SABIC could potentially raise $70bn using bonds, allowing the PIF to raise cash quickly from international banks.

“The PIF is in separate talks with financial institutions to borrow $6bn-$8bn, marking the first time the entity will directly tap banks for funding and paving the way for further debt raising,” said FT.

Saudi Arabia says quarrel with Canada will not stop oil shipments- Financial

Read: Why would Saudi Aramco want to buy a stake in Sabic?

Aramco and Canada

According to the Financial Post, Saudi’s diplomatic dispute with Canada over the detention of women’s rights activists will not affect the kingdom’s oil sales to Canadian customers, quoting the Saudi energy minister saying Thursday.

A statement carried by the state-run Saudi Press Agency quoted Khalid al-Falih as saying oil sales are not affected by politics as there is a “firm and longstanding policy that is not influenced by political circumstances.”

Canada, itself one of the world’s five top energy producers, gets some 10 percent of its oil imports from Saudi Arabia, importing from the kingdom some 75,000-85,000 barrels of oil per day.

Bilateral trade between the two nations stood at $3 billion in 2017.

Reuters reported that Canada’s TMX Group Ltd said on Wednesday it has not had recent talks with Aramco about a partial listing on the Toronto Stock Exchange as part of the oil firm’s IPO and that it currently has no plans for further dialogue. TMX had earlier campaigned hard for a piece of the IPO.