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Home / Business / The Saudi fund may play only a minor role in Musk's $ 72 billion Tesla plan: the bankers

The Saudi fund may play only a minor role in Musk's $ 72 billion Tesla plan: the bankers



RIYADH (Reuters) – Elon Musk told investors this week that "obviously the Saudi Arabian sovereign wealth fund needs more than enough capital" to fund the Tesla acquisition.

FILE PHOTO: Elon Musk, Founder, CEO and Lead Designer at SpaceX and co-founder of Tesla, speaking at the International Space Station Research and Development Conference in Washington, USA, July 1

9, 2017. REUTERS / Aaron P. Bernstein / File Photo

The fund has assets of over $ 250 billion. But it is not that easy.

The Public Investment Fund (PIF) has many claims to its financial and political resources.

More than half of its assets are tied up in large Saudi companies whose stockpiles may be hard to sell.

PIF has made significant commitments to other technology companies or investments, including a $ 45 billion agreement to invest in a giant technology fund led by the Japanese Softbank.

$ 3.5 billion will be invested in Uber, a US $ 1 billion venture into Virgin Group space companies, and another $ 20 billion in a Blackstone infrastructure investment fund.

There is also pressure to spend money at home, where a sinking economy has pushed unemployment among Saudi citizens to record highs.

"You could take some of it to take Tesla privately, but not necessarily a big chunk of it, and certainly not all," said a banker of a large golf corporation operating in Saudi Arabia.

FILE PHOTO: Saudi Arabian Crown Prince Mohammed bin Salman Al Saud is seen at a meeting with UN Secretary-General Antonio Guterres at United Nations Headquarters in New York's Manhattan district on March 27, 2018. REUTERS / Amir Levy / File photo

Musk has not submitted a formal buyout application to Tesla's board, the company said Tuesday.

The Tesla CEO has stated that he does not believe he would have to raise the full value of $ 72 billion for Tesla through his $ 420 offer, as he is supported by many existing shareholders – including 20 percent of the company – Expect to roll their shares into a private Tesla.

The Saudi PIF already holds about 5 percent of Tesla.

Saudi Arabian Crown Prince Mohammed bin Salman, who heads the PIF, wants to diversify the Saudi economy by opening up new industries beyond oil exports. Participation in a Tesla agreement could bring Saudi Arabia closer to developing a domestic auto industry or play a role in Musk's battery production or space activities.

What will decide Prince Salman, PIF CEO Yasir al-Rumayyan, and other fund officials will be crucial to Musk's private efforts.

Musk said on Monday that al-Rumayyan had offered Tesla private support and that talks with the PIF, along with other investors, would continue.

Spokespersons for the Fund as well as representatives of the Saudi government have so far made no comments on Musk's statements. But bankers familiar with the secret PIF said on Tuesday that they had not seen any sign that they were preparing for a Tesla deal.

ILLIQUID ASSETS

These bankers added that although the fund is huge, many of its assets are not liquid and cash is limited.

FILE PHOTO: A Tesla Sales and Service Center will be shown on June 28, 2018 in Costa Mesa, California, USA. REUTERS / Mike Blake / File Photo

The PIF said last October that there are $ 230 billion in assets under management, and analysts believe that this number is now likely to swell by more than $ 250 billion, especially as Consequence of a rise in the Saudi stock market.

Stock market information indicates, however, that $ 140 billion or more of PIF's assets are in major Saudi companies such as Saudi Basic Industries (SABIC) and National Commercial Bank.

These could not be quickly monetized without depressing prices on the local stock market, while the sale of many of them would conflict with another declared role of the PIF to help Saudi companies "become regional and global leaders".

Meanwhile, the illiquid market in Saudi Arabia, the sale of real estate to raise funds, is not a short-term option.

"The PIF is not nearly as fluid as people would like to think," said an international banker who deals with the fund. However, the PIF could receive two cash infusions in the coming months and try to raise its first commercial loan between $ 6 billion and $ 8 billion, Reuters sources blamed.

And state oil giant Saudi Aramco said last month he was working on a potential purchase of a strategic stake in SABIC from the PIF. A full purchase of 70 percent of PIF's stake would bring the fund around $ 70 billion. Bankers, however, expect Aramco's purchase to take at least several months to negotiate, and PIF has already committed to major projects planned to stimulate the Saudi economy.

These include a $ 500 billion business zone in the northwest of the country, multi-billion dollar real estate projects in Mecca and Medina, and a huge entertainment district outside Riyadh.

"If it spends tens of thousands of dollars abroad and the domestic economy is still falling, some Saudis will not look good," said the golf banker.

Edited by Alexander Smith and Mark Potter

Our Standards: The Thomson Reuters Trust Principles.

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