Saudi Arabia is getting ready for the twilight of the oil age by creating the world’s largest sovereign wealth fund for the kingdom’s most prized assets.
Deputy Crown Prince Mohammed bin Salman laid out his vision for the Public Investment Fund, which will eventually control more than $2 trillion and help wean the kingdom off oil. As part of that strategy, the prince said Saudi will sell shares in Aramco’s parent company and transform the oil giant into an industrial conglomerate. The initial public offering could happen as soon as next year, with the country currently planning to sell less than 5 percent.
Saudi Arabia plans to sell shares in Aramco, the world’s largest oil company, as a step toward creating what it hopes can be a country-transforming wealth fund.
An initial public offering of less than 5% of Aramco’s parent company could happen as early as next year. Shares would be part of the Public Investment Fund, a growing fund that could help end the kingdom’s dependence on oil, Deputy Crown Prince Mohammed bin Salman told Bloomberg.
“IPOing Aramco and transferring its shares to PIF (the Public Investment Fund) will technically make investments the source of Saudi government revenue, not oil,” the prince said in a five-hour interview this week at the royal compound in Riyadh. “What is left now is to diversify investments. So within 20 years, we will be an economy or state that doesn’t depend mainly on oil.”
In addition to being the kingdom’s Defense Minister and second in line to the throne, the prince oversees the Council for Economic and Development Affairs, which controls the Public Investment Fund. The fund currently hold stakes in Saudi Basic Industries Corp., the world’s second-biggest chemicals manufacturer, and National Commercial Bank, the kingdom’s largest lender.The fund is expected to grow to more than $2 trillion and will increase its foreign investments from about 5% now to 50% by 2020.
Back in July, the kingdom’s fund spent $10 billion to invest in the Russian Direct Investment Fund and $1.1 billion to acquire a 38% stake in South Korea’s Posco Engineering & Construction Co.
This move and a planned “National Transformation Plan” aimed at increasing non-oil revenue to be announced within a month, come amid a global rash in oil prices. “We are working on increasing the efficiency of spending,” Prince Mohammed said. “So I don’t believe that we have a real problem when it comes to low oil prices.”