Saudi Arabia’s government has transferred a nearly $80 billion stake in Saudi Aramco to its sovereign wealth fund, as the kingdom seeks to strengthen the vehicle tasked with overhauling its economy.
The 4% stake was transferred to Sanabil, an investment arm of the sovereign Public Investment Fund, more than a year after the state transferred a similar sized chunk of Aramco to the PIF, which now controls 8% of the world’s largest oil producer.
Crown Prince Mohammed bin Salman, the country’s prime minister, said the transfer would “solidify PIF’s strong financial position and credit rating”.
MBS, as he is widely known, also chairs the PIF and has made it the vehicle for investments under his Vision 2030 strategy, which seeks to modernize and diversify the kingdom’s economy in order to reduce reliance on oil.
The $600 billion PIF aims to manage $1 trillion in assets, and the larger stake in Aramco will provide it with substantial dividends to fund its growth.
The PIF has become a go-to source of capital for financiers looking to fund everything from tech startups to football clubs.
Yasir al-Rumayyan, the PIF’s governor who has risen to become one of the kingdom’s most powerful non-royals, has been tasked with spearheading its expansion. He is also the chairman of Saudi Aramco and Newcastle United Football Club, which is one of the PIF’s most visible overseas investments.
According to MBS, the state is still Aramco’s largest shareholder, owning 90.18 percent of the company. In 2019, the energy giant listed a 1.7% stake on the Saudi stock exchange, raising approximately $29 billion in a blockbuster initial public offering to kick-start the kingdom’s diversification drive.
Sanabil Investments, which is owned entirely by the PIF, disclosed investments in dozens of private equity and venture capital firms this month, including Blackstone and General Atlantic.
In addition to foreign investments, the PIF secured a $17 billion loan in November to help finance its push into large development projects such as the ultramodern Neom city on the Red Sea. It stated at the time that an earlier $11 billion loan for five years arranged in 2018 would be paid off early.
Despite its desire to diversify its economy, Saudi Arabia remains committed to developing its energy sector and maintaining its position as one of the world’s most powerful oil producers.
Oil is by far the most important source of government revenue, and the kingdom intends to remain among the top producers for decades, even if demand rises in the coming years.
Global demand has risen to more than 100 million barrels per day, with Saudi Arabia accounting for more than 10% of that total. It anticipates that consumption will remain high even if growth slows.
Saudi Arabia has led the Opec+ producer group in cutting output in recent weeks to help support prices, which have risen back to above $85 per barrel, well above the long-term average.
Saudi Aramco made a record $161 billion in profits last year and paid a $19.5 billion dividend in the fourth quarter alone.
Fitch upgraded Saudi Arabia’s sovereign debt to A+ earlier this month, citing its reserves and economic diversification programme.