How Saudi's Stake in Tesla Could Help Musk Go Private

(Bloomberg) -- Saudi Arabia’s investment in Tesla Inc. is turning out to be more significant than market-watchers knew. As well as being a signal of intent of the kingdom’s determination to diversify into technology, the almost 5 percent stake is also of huge importance to Elon Musk’s ambition to take the electric carmaker private. With the Saudi government hoping to grow its Public Investment Fund to more than $2 trillion by 2030, it seems that the interests of both parties may have aligned.

1. Why is the stake so significant to Tesla?

Tesla CEO Musk said Monday that the PIF has long been interested in being part of any attempt to take the Palo Alto, California-based company private. There’s a payoff for the technology billionaire too: he also revealed that the Saudi fund’s deep pockets were the reason he’d indicated that his proposal for the firm had “funding secured.” His statement follows almost a week of uncertainty for investors about the Tesla founder’s intentions.

2. How does the stake fit with Saudi Arabia’s plans?

It’s a high-profile part of the kingdom’s Plan B to propel its sovereign-wealth fund into the ranks of global giants and to diversify away from oil. The initial plan was to raise as much as $100 billion for the PIF through an initial public offering of a small stake in Saudi Aramco, the state-owned oil company, in the second half of 2018. The IPO is no longer going ahead as originally planned, and the PIF is looking at other investments. Tesla is one such investment, even though there are widespread concerns about the company’s valuation and the future of the auto industry.

3. Why are the Saudis trying to grow their fund?

The PIF is central to the government’s effort to diversify the economy away from oil, under a plan known as Vision 2030. The fund was set up in 1971 to support projects of strategic significance to the economy and for most of its history focused mainly on its home market. It holds about $150 billion of assets in listed Saudi companies, including stakes in Saudi Basic Industries Corp., the world’s second-biggest chemicals manufacturer; Saudi Telecom Co.; and National Commercial Bank, the kingdom’s largest lender by assets. But in recent years, it has made headline-making investments around the globe. It currently has assets of about $230 billion.

4. What kind of investments?

Tech plays an important part. In 2017 alone, the PIF announced plans to invest as much as $45 billion in a technology fund run by Japan’s SoftBank Group Corp., build a $500 billion city called Neom on the Red Sea, set up a $1.1 billion fund to support small- and medium-sized enterprises and embark on a $4.8 billion project to redevelop the Jeddah waterfront on the Red Sea. It has also made a $3.5 billion investment in ride-sharing company Uber Technologies Inc. and plans to plow about $1 billion into Virgin Group’s space companies.

5. What about other sectors?

The PIF has put $20 billion into a U.S. infrastructure fund managed by Blackstone Group LP and is said to be buying a $400 million stake in Endeavor, a major Hollywood talent and event manager. It was among investors that bought a 55 percent stake in Accor SA’s property business. The planned IPO of Aramco was intended to provide the fund with a deep new stream of money to strike additional deals.

6. What happened to the Aramco IPO?

The IPO’s importance seems to have waned as Crown Prince Mohammed bin Salman grapples with an agenda crowded with social and economic reforms at home and an assertive foreign policy. Without the Aramco IPO, the PIF has a long way to go before it becomes the world’s largest sovereign-wealth fund, said Rachel Pether, an adviser at the Sovereign Wealth Fund Institute. But she says rushing would be a mistake: “You only get one chance to make a first impression, and the world will be closely watching this IPO.”

7. What else will the PIF do instead?

Aramco is considering buying as much as 70 percent of the PIF’s stake in Saudi Basic Industries Corp., known as Sabic, which has a market value of about $100 billion -- meaning the deal could raise $70 billion in capital for the fund. PIF could raise more by selling its stakes in other Saudi-listed companies. Debt is another option. In early July, the fund was said to be approaching banks for a multi-billion-dollar loan, which would be its first. The PIF is willing to borrow to diversify the Saudi economy and increase returns from investments.

8. Who runs the fund?

Its managing director is Yasir Al-Rumayyan, a former Saudi Fransi Capital executive who joined in 2015. Over the past year, the executive team around him has been beefed up with the addition of Abdulmajeed Alhagbani, HSBC Holdings Plc’s local head of asset management, as a director; Alireza Zaimi, a Bank of America Merrill Lynch managing director, as head of corporate finance and treasury; and Rashed Sharif, previously the chief executive officer of Riyad Bank’s investment-banking unit, to head domestic investments. Michael Klein, a former Citigroup Inc. investment banker, is said to be working with the PIF on its global investment strategy and financing plans.

The Reference Shelf

• QuickTake explainers on Mohammed bin Salman, the young leader behind the Saudi shakeup, and why Saudis are thinking twice about an Aramco IPO.
• The Public Investment Fund website.
• Bloomberg Opinion columnist Liam Denning on the downside of the Aramco-Sabic deal.
• Visit (virtual) Neom, Saudi Arabia’s "most ambitious project."

--With assistance from Grant Clark.

To contact the reporter on this story: Sarah Algethami in Riyadh at salgethami@bloomberg.net

To contact the editors responsible for this story: Stefania Bianchi at sbianchi10@bloomberg.net, Paul Armstrong, Laurence Arnold

©2018 Bloomberg L.P.