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

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

Blackstone, the New York-based private equity and alternative asset management company, is looking to generate US$100bn of infrastructure investments, following the signing of a memorandum of understanding with Saudi Arabia’s sovereign wealth fund, which would see the Public Investment Fund (PIF) invest $20bn of Saudi public money into a new Blackstone investment vehicle.

Blackstone is aiming to generate a total of  US$40bn of committed investor funds to the new vehicle, although it does acknowledge 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 US$100bn of infrastructure projects, “principally in the US”, Blackstone added.

The MOU announcement came on the same day thatUS president Donald Trump signed a deal with the Kingdom for US$110bn of “defense capabilities” – effectively a very large arms deal – although there is no suggestion of a link between the two announcements.

Saudi Arabia’s PIF and Blackstone started their discussions a year ago, they stated.

Blackstone has already invested some US$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,” Al Rumayyan said.

There is likely to be a significant requirement beyond the PIF commitment to US infrastructure; however, as Blackstone noted, there are estimates of an infrastructure funding gap in the US alone of up to US$2trn – some 100 times 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 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. As reported, the prince is behind Saudi Arabia’s transformational campaign to diversify its economy away from its dependence on oil revenues, known as Saudi Vision 2030.

Europe trade

Europe is another region that requires infrastructure modernisation.

Trade links between Saudi Arabia and the EU were partially formalised in 1988, through the so-called 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 noted at the time that it was not totally convinced by all the “‘win-win’ scenarios outlined in the document.”

However, notwithstanding such concerns, the EU remains the No. 1  trading partner of the Gulf Cooperation Council, the six-country Middle Eastern trade bloc of which Saudi Arabia is a member, and there is continued dialogue between the two multilateral organsations on trade issues, such as a meeting, held in  January, between GCC secretary general Abdullatif Al-Zayani and EU transport commissioner Violeta Bulc.