Blackstone MOU with Saudi’s PIF kickstarts move towards $100bn of infrastructure investments

Investment firm Blackstone is aiming to generate $100bn of infrastructure investments, starting with a Memorandum of Understanding signed with the Public Investment Fund (PIF) of Saudi Arabia that would seek to invest $20bn of Saudi public money into a new investment vehicle.

Blackstone is aiming to generate a total of $40bn of committed investor funds to the new vehicle, although it did state that “The MOU is non-binding and the parties will continue their negotiation to agree definitive documentation”.

Adding debt financing to the equity of the vehicle would mean targeting more than $100bn of infrastructure projects, “principally in the US”, Blackstone added.

The MOU announcement came on the same day US president Donald Trump signed a deal with the Kingdom for $110bn of “defense capabilities” – effectively a very large arms deal – although there is no suggestion of a link between the two announcements. The PIF and Blackstone started their discussions a year ago, they stated. Blackstone has already invested some $40bn in infrastructure projects over the past 15 years.

The Saudi interest in infrastructure projects is being driven by the PIF’s search for sustainable returns, according to Yasir Al Rumayyan, managing director of the PIF: “This potential investment reflects our positive views around the ambitious infrastructure initiatives being undertaken in the United States as announced by president Trump, and the strategic opportunity for the Public Investment Fund to achieve long-term returns given historical investment shortfalls.”

There is likely to be a significant requirement beyond the PIF commitment to US infrastructure, however, as Blackstone noted that there are estimates of an infrastructure funding gap in the US alone of up to $2trn – some 100x the size of the PIF’s commitment through the MOU.

Currently, the PIF’s portfolio constitutes some 200 investments, of which 20 are listed on the Saudi Stock Exchange, Tadawul. It also holds unlisted equities, property, loans, bonds and sukuks. A policy change announced in 2015 is led to the development of a new strategy and mandate, which is intended to help Saudi Arabia diversify its economy. The PIF board is chaired by a member of the Saudi royal family, deputy crown prince Mohammad bin Salman al Saud.

Europe trade

Europe is another region that requires infrastructure modernisation.

Trade links with Saudia Arabia were partly formalised with the EU in 1988 through the EU-GCC Cooperation Agreement. By April 2016,  the EU-GCC Joint Co-operation Committee “agreed to establish a more structured informal dialogue on Trade and Investment. This will provide scope to tackle trade and investment related issues or explore matters of common interest in more detail, within a dedicated working-level framework.”

A key difference to the US approach lies in the Sustainability Impact Assessment carried out by the EU in 2004 by PricewaterhouseCoopers. This was adopted by the European Commission by 2006, but the EC did note that it was not totally convinced by all the ‘win-win’ scenarios outlined in the document.”

For example, in its reponse to the SIA and the impact on any free trade agreement with the GCC, the EC stated: “While not formally part of the FTA, the Commission will also seek to promote a dialogue with GCC on labour rights, social development, good governance, environmental and health protection. The dialogue could emphasise the importance of core labour standards, appropriate labour market policies and educational systems targeting the private sector’s needs in order to secure that employment increases following the liberalisation of services will in fact benefit the national labour force in the GCC countries.”

However, notwithstanding the EC’s concerns expressed at the time, the EU is the number one trading partner of the GCC, and there is continued dialogue between the two multilateral organsiations on trade issues, such as the 9 January 2017 meeting  between GCC secretary general Abdullatif Al-Zayani and EU Transport commissioner Violeta Bulc.

 

ABOUT THE AUTHOR
Jonathan Boyd
Editorial Director of Open Door Media Publishing Ltd, and Editor of InvestmentEurope. Jonathan has over two decades of media experience in Japan, Australia, Canada and the UK. Over the past 16 years he has been based in London writing about funds and investments . From editing the newsletter of the Swedish Chamber of Commerce in Japan in the 1990s he now focuses on Nordic markets for InvestmentEurope.

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