Complex Made Simple

Saudi PIF is raising money through debt instruments. So is Aramco. Why?

Selling to buy, Buying to sell. Saudi knows what it is doing to finance its non-oil future

PIF will raise money through debt twice this year Aramco sold $12 billion of bonds and was oversubscribed Saudi Aramco makes more profit than any other single company in the world, to the tune of $48bn

The Saudi Public Investment Fund (PIF), the kingdom’s primary vehicle to diversify away from oil, is clear on the path it is taking when it comes to funding its current and planned investments.

It will sell and borrow to invest.

Aramco will buy, borrow and sell.

Let’s explain, if we can.

PIF selling and borrowing

The PIF which has more close to $300 billion (bn) in assets will receive $69.1 billion from the sale of its 70% in Saudi petrochemicals company Saudi Basic Industries Corporation (SABIC) to Aramco.

PIF is planning to get around a $100bn injection from Aramco’s own planned IPO of a 5% stake in the giant oil company, sometimes in 2021. Aramco shares are owned by the PIF.

According to Reuters, the PIF will raise money through debt twice this year, quoting the fund’s managing director telling CNBC.

"I think it's going to be in the neighbourhood of SAR 14bn ($3.73bn) and for the U.S. dollar I think it's going to be north of $8bn or $10bn," Yasir al-Rumayyan said in an interview at a conference in Los Angeles.

PIF borrowed $11 bn using an international syndicated loan, its first ever. 

PIF is borrowing to have enough funds towards buying assets and managing them.

PIF has invested $45 billion into the $100 billion Softbank Vision Fund, which focuses on technology companies, and owns shares in electric car makers Tesla and Lucid Motors.

"The companies that we have in Softbank Vision Fund, like 80 of them, we started signing MOUs and JVs with some of these companies," said al-Rumayyan.

Zawya reported Alireza Zaimi, executive director, head of corporate finance division at PIF telling a financial conference in Riyadh, "We have a program we defined back in 2017 in terms of long-term strategic funding plans for PIF. Within that plan we look at all instruments, we assess pros and cons and we action and execute if they make sense to us.”

Aramco borrowing and selling 

According to Forbes, Aramco sold $12 billion of bonds earlier this month and was so oversubscribed that it managed to get the deal done at borrowing costs that were better than Saudi which owns it.  

Forbes says the sale of the $12 billion corporate bond offering serves two purposes.

First, it will "establish Aramco’s status as an independent corporate identity," states London-based financial firm TS Lombard

“If the company looks independent, then investors will likely be more attracted to it.”

The report explains the Saudi government wants Aramco to appear independent in order to list the company as an asset – whether to borrow against it, to define it as a sovereign wealth asset or even to sell shares in the future.

Saudi Aramco makes more profit than any other single company in the world, to the tune of $48bn.

Come 2021, Aramco hopes to be evaluated as a $2trn company, and sell 5% of its share using an IPO which will be listed in the US and Saudi, among others.

That money will go straight into the PIF pockets to repay its current borrowing spree or invest the funds towards PIF aims at having by 2030 AUM of around $2trn.