Public Investment Fund of Saudi Arabia. Saudi Aramco has agreed on its first investment in Russia. $2 billion agreements
Moscow, October 14 - "Vesti.Ekonomika". The Russian Direct Investment Fund (RDIF) has signed a number of agreements on joint projects with Saudi Arabia.
Today the first meeting of the Russian-Saudi Economic Council, a new body composed of leading representatives of the business circles of both countries, took place.
The meeting was held in the presence of Russian President Vladimir Putin and Crown Prince and Minister of Defense of Saudi Arabia Mohammed bin Salman Al Saud.
The co-chairs of the council are the CEO of the Russian Direct Investment Fund (RDIF, the sovereign wealth fund of the Russian Federation) Kirill Dmitriev and Prince Abdullah bin Bandar bin Abdul Aziz, Minister of the National Guard of the Kingdom of Saudi Arabia.
The Council will play a leading role in the development of bilateral economic ties, trade and investment cooperation between Russia and Saudi Arabia in all sectors.
During the visit of the Russian President to Saudi Arabia, a number of agreements were signed.
A consortium of investors consisting of the Russian Direct Investment Fund, the Saudi state oil company Saudi Arabian Oil Company (Saudi Aramco) and the sovereign fund of the Kingdom of Saudi Arabia Public Investment Fund (PIF) announced the approval of binding documentation for the acquisition of a 30.76% stake from the Rusnano group at the Novomet Group of Companies, one of the leading manufacturers of high-tech oil submersible equipment in Russia and the world.
RDIF and the Saudi petrochemical corporation SABIC agreed on joint investments in the Unified National Social Network group project for the construction of a methanol plant in the city of Skovorodino, Amur Region. The production capacity of the 1st stage of the enterprise will be 1 million tons of methanol per year. In July 2019, the project to create a methanol plant became a resident of the Svobodny priority development territory (ASEZ). As part of the ASEZ mechanisms, the state provides investors with incentive support measures.
RDIF announced cooperation with the Saudi agricultural and livestock investment company SALIC (Saudi Agricultural and Livestock Investment Company). “The partnership between RDIF and SALIC is aimed at realizing this potential by attracting investments and expertise from SALIC, as well as further strengthening comprehensive cooperation between our countries,” Dmitriev noted.
RDIF, PhosAgro and the Saudi diversified mining corporation Ma'aden announced a partnership to develop investment cooperation and jointly implement projects in the Russian Federation and the Kingdom of Saudi Arabia.
A sovereign wealth fund is a government investment fund whose financial assets include stocks, bonds and property, precious metals and other financial instruments. Sovereign wealth funds' investments span the globe.
Some sovereign wealth funds are owned by central banks, which accumulate foreign currency cash in the process of managing the national banking system; such funds typically have high economic and fiscal significance. Other sovereign wealth funds simply represent government savings that are invested in various companies to generate investment income and do not play a significant role in fiscal management.
Sovereign funds can invest in foreign deposits, gold, SDRs, a reserve position with the IMF, or reserve currencies such as the dollar, euro or yen. Sovereign funds can be registered as investment companies, government pension funds, sovereign oil funds, etc.
Thus, Saudi Arabia is investing $10 billion in the Russian economy through the sovereign fund of the Kingdom of Saudi Arabia Public Investment Fund (PIF). The fund traditionally finances large investment projects, and the total volume of the fund's investments is not disclosed, although, according to some estimates, it could exceed $380 billion.
1) Norwegian Government Pension Fund Global - $882 billion
The volume of the Norwegian sovereign fund is $882 billion. It was created in 1990 as the State Oil Fund, and in 2006 it was renamed Government Pension Fund Global (GPFG).
The fund accumulates all revenues from the oil and gas sector and, if necessary, covers the budget deficit. About 60% of assets are invested in shares (by the end of 2012, GPFG owned 1.2% of the shares of all companies traded in the world on stock exchanges), the rest is in government bonds and real estate. The fund is the largest shareholder in Europe.
The Norwegian sovereign wealth fund declares its goal to save the country's oil revenues for future generations. GPFG is considered the largest sovereign fund: its assets are estimated at NOK 5.4 trillion ($880 billion).
2) Abu Dhabi Investment Authority (ADIA) - $773 billion
ADIA has never published the value of its assets, but experts estimate them to be between $650 billion and $875 billion. It was founded in 1976. Analysts at the Sovereign Wealth Funds Institute estimate investments at $773 billion.
ADIA manages enormous capital and is the largest international investment fund. Because of its size, the fund has significant influence on international finance.
It annually receives 70% of the budget surplus, as well as dividends from the state oil monopoly ADNOC.
Over 75% of ADIA's assets are transferred under the management of foreign investment funds, mainly American.
The bulk of the funds are placed in shares of companies in developed markets and US government bonds. The fund manages the emirate's excess revenues from oil exports, which are estimated at almost $1 trillion.
3) Saudi Arabian Sovereign Fund (SAMA Foreign Holdings) - $757.2 billion
The volume of the sovereign fund of the world's largest oil producer and exporter is estimated at $757.2 billion.
It has existed in its current form since 2008, when $300 billion of the assets of the Saudi Arabian Monetary Agency (performing the functions of the central bank) and $60 billion from local pension funds were transferred to it.
The main source of revenue is income from oil exports. Information about the investment strategy and structure of the fund's assets is not made public.
4) China Investment Corporation - $746.7 billion
The fund was created in 2007 to manage part of China's gold and foreign exchange reserves (≈$200 billion) with higher returns than the conservative strategy of investing in American government bonds provides.
Over 30% of CIC's portfolio is in shares, primarily financial and IT companies. About 40% of all assets are placed abroad, largely with a bet on the recovery of the US and European economies.
The company's fixed assets are invested on behalf of the government in the domestic market, mostly in large corporations. A significant portion of the portfolio has long been invested in energy companies and projects due to their strategic importance. However, after the crisis, such investments ceased to provide the expected returns.
Recently, in the range of the fund's investments, there has been a shift towards investing in agriculture, and vertically, across the entire industry, from planting and irrigation to the production of final products and raising livestock. Investment objects are located all over the world, without reference to individual countries.
5) Kuwait Investment Authority - $548 billion
The volume of the Kuwait Investment Authority (KIA) fund is $548 billion.
It has existed since 1953 and is considered the world's oldest sovereign wealth fund.
Includes the Reserve Fund, which performs the functions of the treasury and the owner of all state property, and the Fund for Future Generations, which annually receives 10% of all government revenues.
Major assets include stakes in Daimler AG, BP and Bank of America Merrill Lynch.
6) China Foreign Exchange Management Fund (SAFE Investment Company) - $547 billion
In essence, it is the government fund for the foreign exchange markets of the People's Republic of China. It operates in the form of a commercial “subsidiary” of the State Administration registered in Hong Kong, which is in charge of Chinese gold and foreign exchange reserves (≈$3.5 trillion).
The company's board of directors includes official representatives of the administration. The fund is active in the British stock market; its portfolio includes shares of Royal Dutch Shell, Rio Tinto, Barclays, and BHP Billiton. First of all, the fund is China's reserve currency fund.
The main objectives of the fund are to generate additional income from the fund's funds, expand the diversification of investments, and also reduce the dependence of the Chinese economy on dollar fluctuations. SAFE can invest in a wide range of instruments: shares of international and local companies, bonds and other debt instruments.
7) Hong Kong Monetary Authority Exchange Fund - $400.2 billion
The volume of the currency fund of the Hong Kong Monetary Authority Exchange Fund is $400.2 billion.
The Hong Kong Sovereign Fund was established in 1993 and consists of a Reserve Fund designed to support the exchange rate between the Hong Kong dollar and the US dollar, and a Future Generations Investment Fund.
77% of assets are placed in shares, the rest in government bonds. At the same time, almost 90% are securities denominated in US dollars.
The main purpose of the fund is to maintain the stability of Hong Kong's financial and monetary systems and maintain Hong Kong's status as an international financial center.
The structure of the fund is divided into 3 portfolios:
— Insurance is a safety net for Hong Kong’s monetary system. Consists of highly liquid dollar securities.
— Investment – aimed at long-term investments. Consists of stocks and bonds of OECD countries.
— Strategic – investments in shares of the Hong Kong stock exchange and clearing center.
It has 2 subsidiaries: RGIC - Real Gate Investment Company - created to invest in two different joint ventures in real estate abroad and EFIC - Eight Finance Investment Company - engaged in alternative investments.
8) Government of Singapore Investment Corporation (GIC) - $344 billion
The volume of the fund of the Government of Singapore Investment Corporation (GIC) reaches $344 billion.
The Singapore Government Investment Fund (GIC) was established in 1981 by the Singapore government to manage overseas assets.
GIC invests in a wide range of assets - debt markets, equities, real estate, infrastructure projects, and natural resource development.
In the GIC portfolio, the share of alternative investments (real estate, infrastructure facilities) is uncharacteristically high for sovereign funds - 27% of all assets (shares account for 45%, others - government bonds and cash)
9) Qatar Investment Authority - $256 billion
The Qatar Sovereign Fund was created in 2005 to manage revenues from the oil and gas industry of the Qatari government.
The value of his assets is $256 billion. He is a shareholder of the automobile companies Volkswagen Group and Fisker Automotive, investment banks Barclays and Credit Suisse, the Miramax Films film studio, the Paris Saint-Germain football and handball clubs, the oil and gas company Royal Dutch Shell, etc.
He owns $4 billion worth of real estate in France.
In October 2014, Qatar Investment Authority signed an agreement with CITIC Group Corp. to launch a new $10 billion fund that will invest in China.
10) National Social Security Fund of China (NSSF) - $236 billion
It is China's largest pension fund. Created by the State Council of the People's Republic of China in 2000 as a “strategic reserve fund” to maintain the sustainability of the pension system and solve other social problems caused by the aging population.
Receives funds from the budget, as well as 10% from IPOs of Chinese state-owned companies on foreign exchanges.
Plays the role of a major institutional investor in the domestic market. In the domestic market, it invests in bank deposits, treasury bonds, corporate bonds, structured products, investment funds, shares, industrial funds and trusts.
The range of foreign investments is even wider: in addition to the same instruments as in the home portfolio, all possible types of bonds, CDS, swaps, futures, as well as any investments approved by the government are added.
53.95% of the fund is managed by external funds. In addition to the largest Western funds, NSSF invested in 16 venture capital and private equity funds (Hony Capital, CDH Investments, CITIC Capital, SAIF Partners, CITIC Private Equity, Bohai Capital and New Horizon Capital, etc.).
$40 billion
Involved in joint funds
Together with the China Investment Corporation (CIC), RDIF created the Russia-China Investment Fund (RCIF) with a capital of $2 billion, 70% of which will be invested in Russia. It is expected that up to $2 billion more will be raised into the fund's capital from Chinese and international investors.
RDIF and the UAE sovereign fund Mubadala agreed to create a joint fund worth $2 billion. Its main task will be to make joint investments in long-term projects in various sectors of the Russian economy. Mubadala also manages $5 billion allocated by the Department of Finance of Abu Dhabi for investment in Russian infrastructure.
RDIF and the sovereign wealth fund of the Kingdom of Saudi Arabia, the Public Investment Fund (PIF), have created a partnership within which the parties jointly invest in attractive projects, including in the field of infrastructure and agriculture in Russia. PIF invested $10 billion in the partnership, and the Russian-Saudi Investment Fund was created.
RDIF and Caisse des Dépôts International have launched a Russian-French investment platform focused on investing in a wide range of assets, including debt instruments, infrastructure and real estate in Russia and France, contributing to strengthening economic cooperation between the countries.
RDIF and the State Bank of India (SBI) have created a new consortium to co-invest in the interests of expanding bilateral economic cooperation. The goal of this partnership is to develop infrastructure to facilitate access to long-term capital in Russia and India and actively promote mutual investments between the two countries.
RDIF and the Korean Investment Corporation (KIC) signed a memorandum on the creation of a Russian-Korean investment platform with the aim of investing in companies and projects that contribute to the development of foreign trade and investment cooperation between the countries.
RDIF and Fondo Strategico Italiano (FSI) signed a memorandum on the creation of a Russian-Italian investment platform. The planned volume of funds managed by partners is €1 billion. Investments will be directed to companies and projects that contribute to strengthening foreign trade and increasing the volume of foreign direct investment between Italy and Russia.
RDIF and Japan Bank for International Cooperation (JBIC) have created the Russian-Japanese Investment Fund, within the framework of which the parties intend to jointly search for and implement investment-attractive projects that will help strengthen trade, economic and investment cooperation between the two countries. According to the agreements reached, investments by RDIF and JBIC in the joint fund amounted to $500 million on each side
RDIF launched an automatic co-investment mechanism, the first participant of which was the Kuwait Investment Fund (KIA) with an initial investment of $500 million. Subsequently, the fund doubled the volume of investments with RDIF to $1 billion. This mechanism gives international investors the opportunity to automatically participate in each RDIF transaction in proportion to their investments.
RDIF and the investment fund of the Kingdom of Bahrain Mumtalakat signed a Memorandum of Cooperation. The purpose of this partnership is to exchange information and experience in sectors of mutual interest to both parties and to seek investment opportunities in Russia and Bahrain.
RDIF and the Chinese company CITIC Merchant, a division of the leading financial group CITIC, agreed to create a Russian-Chinese investment bank. The created structure will provide a wide range of services in the field of investment banking business, helping to attract Chinese capital to Russian companies.
RDIF and the leading construction, development and investment company Rönesans Holding agreed to expand investment cooperation. The parties are searching for attractive investment projects on the territory of the Russian Federation. RDIF and Rönesans Holding identified the areas of healthcare, construction, infrastructure and commercial real estate as priority areas of cooperation.
RDIF and the Vietnamese state investment fund State Capital Investment Corporation (SCIC) signed a memorandum on the creation of a Russian-Vietnamese investment platform. RDIF and SCIC investments in the platform will amount to $250 million on each side and will be directed to companies and projects that help strengthen foreign trade and increase the volume of foreign direct investment between Vietnam and Russia.
RDIF and Turkey's sovereign wealth fund signed a memorandum on the creation of the Russian-Turkish Investment Fund, within the framework of which the parties intend to jointly search for attractive investment projects that will help strengthen bilateral economic ties and increase the volume of mutual investments between Russia and Turkey. RDIF and Turkey's sovereign wealth fund will invest up to $500 million on each side in the creation of the Russian-Turkish Investment Fund.
RCIF and the Chinese company Tus-Holdings agreed to create a joint Russian-Chinese venture fund that will promote the development of the potential for trade, economic, investment, scientific and technical cooperation in Russia and China.
The Russian Direct Investment Fund (RDIF) and the National Investment and Infrastructure Fund (NIIF), created by the Government of India with the support of RDIF, agreed to create a Russian-Indian Investment Fund worth $1 billion, within which the parties intend to jointly search for investment-attractive projects, contributing to the strengthening of trade, economic and investment cooperation between the two countries.
RDIF and one of the world's leading port operators, DP World (UAE), announce the creation of a joint venture to invest in port, transport and logistics infrastructure in Russia. The volume of investments by DP World Russia in the development of Russian port infrastructure facilities will amount to $2 billion.
RDIF and India's leading infrastructure investment group IDFC Ltd. (Infrastructure Development Finance Company) agreed to jointly implement investment projects that will strengthen economic cooperation between Russia and India. Each party will allocate up to $500 million for such investments.
RDIF and the Armenian state company SME Investments agreed to create a Russian-Armenian Investment Fund, within the framework of which the parties intend to jointly search for investment-attractive projects that will help strengthen trade, economic and investment cooperation between the two countries.
RDIF, the Chinese Silk Road Fund and Vnesheconombank agreed to strengthen cooperation, within which the parties will focus joint work on finding investment projects in Russia and China that will contribute to the growth of trade, economic and investment cooperation between the two countries. Among the priority areas of cooperation, the parties identified infrastructure, industrial production, energy and energy efficiency.
The completion of the transaction will occur after receiving approval from the Federal Antimonopoly Service (FAS), RDIF said in a statement. A consortium with the participation of RDIF and Saudi Aramco and PIF made the first application for the purchase of a stake in Novomet, an appeal for clarification, back in February 2019, and the second (for approval of the transaction) - at the end of September. “The applicant was asked for additional information. The petition is under consideration,” a FAS representative told RBC. The deal is expected to be completed before the end of the year, one of RBC’s interlocutors clarified.
The sale to Saudi Aramco of a stake in Novomet is a trial balloon for the admission of investors from Saudi Arabia to the Russian market, said Maxim Khudalov, senior director of ACRA. “Relations between countries are improving, and perhaps we will still see Arab money in Russian projects,” he believes. Previously, Saudi Aramco purchased a stake in NOVATEK's second liquefied natural gas (LNG) project, Arctic LNG-2, intending to invest up to $5 billion in it, but the parties did not agree. An additional condition for the deal with Novomet shares may be the admission of this Russian company to the Saudi Arabian market, the expert thinks.
$2 billion agreements
During the Russian-Saudi forum, 30 agreements worth about $2 billion should be signed, RDIF head Kirill Dmitriev. The largest of them, in addition to purchasing a stake in Novomet:
- RDIF, the Saudi sovereign wealth fund PIF and the German financial group KGAL on the creation of a new leasing company Roal, which will supply aircraft to Russian airlines under long-term lease agreements. Investments will exceed $600 million.
- RDIF and PIF will also invest $300 million in NefteTransService (NTS), one of the largest railway operators in Russia. These investments will help expand the company's rolling stock fleet and strengthen its competitiveness in the railway sector, the Russian fund said in a statement.
- The world's largest petrochemical company Sabic, based in Saudi Arabia, together with RDIF, will invest in a methanol production plant with a capacity of up to 2 million tons per year of the ESN group of Grigory Berezkin in the Amur region. The size of Sabic's investment is not disclosed, but it was previously estimated at $700 million.
Pumps for Saudi Arabia and the Middle East
Novomet, which has two industrial sites and its headquarters in Perm, produces oil submersible equipment and provides drilling services to oil companies in Russia and abroad. According to RDIF, the company ranks sixth in the world among oil production solutions providers (3.9% of the global oilfield service equipment market).
Rusnano, together with the Baring Vostok and Russia Partners funds, invested in Novomet in 2011. During this time, the state-owned company invested 3.92 billion rubles. directly into the project, and the funds bought the shares of the founders, notes a representative of Rusnano. Now the six founders have 49.9% of the company left, while Baring Vostok and Russia Partners have less than 20%. “Over the past nine years, with the participation of Rusnano, Novomet has become one of the leaders in the Russian oilfield service equipment market and entered the top 10 of the world market. "Rusnano's investments allowed the company to modernize the Perm production of submersible pumps for oil production, increase revenue by 3.5 times, to 23.2 billion rubles, expand the international equipment supply network to 25 countries and open 12 service centers for equipment maintenance around the world." ,” Anatoly Chubais, Chairman of the Management Board of Rusnano Management Company, reported (his words are given in the message).
Chubais expects that the arrival of a strategic investor in Novomet in the person of one of the world's largest oil producing companies, Saudi Aramco, will strengthen the high status of the Russian company in the international oilfield services market and give new impetus to its development. RDIF, in partnership with Saudi Aramco and PIF, intends to significantly expand Novomet’s business in Saudi Arabia and other key markets in the Middle East, Dmitriev confirmed. According to him, Novomet will be able to expand its portfolio of orders for the production and maintenance of equipment, and will also have the opportunity for further development and the creation of an updated product line.”
This is not the first attempt to attract a strategic investor to Novomet. Previously, the American oilfield services company Halliburton was going to buy 100% of the company, but at the beginning of 2018 it withdrew its application from the FAS. Then the head of the service, Igor Artemyev, suggested that Halliburton was waiting for the next sanctions against Russia and the Americans “simply feel in this situation that they themselves no longer need anything.” “If we compare it with the deal with Halliburton, which acted as a strategic investor with a premium for 100% of Novomet, the consortium with the participation of Saudi Aramco and RDIF acts more like a financial investor,” a source close to one of the parties to the deal told RBC. However, even having agreed on the sale to this consortium, the Rusnano company could earn more than 3.5 billion rubles from this investment.
“Baring Vostok does not plan to participate in a deal with Saudi Aramco and RDIF, but is considering the possibility of selling its stake in the company and is negotiating with potential buyers,” a representative of the investment fund told RBC.
Novomet has been growing well in recent years and has had access to international markets (40% of revenue is exported), so Saudi Aramco’s interest in the company is understandable, notes Khudalov. According to him, taking into account the growth of the order portfolio, the return on investment for new shareholders could be up to three years. Novomet receives about half of its revenue abroad, mainly from North and South America, confirms Danila Shaposhnikov, a partner at the investment company TerraVC. Entering a new region (the Middle East) is logically integrated into Novomet’s development strategy: the company is actively diversifying its business and launching new high-tech oilfield services production and services.