From The Wall Street Journal
The Saudi government is embarking on a campaign of damage control after the abrupt detentions of wealthy businessmen spooked the foreign investors it needs to diversify its economy and list the world’s largest energy company.
Crown Prince Mohammed bin Salman is planning a weekslong trip to France, the U.K. and the U.S. starting later this month, during which he hopes to drum up foreign interest in billions of dollars in business opportunities, including in the aerospace, internet technologies and entertainment sectors, according to people familiar with the matter.
Officials said the trip is intended in part to shore up Saudi Arabia’s image with investors and business after 350 of the country’s business elite were arrested in November in what the government described as a corruption crackdown.
The country wants foreign money to help expand its economy beyond oil. At the center of that plan is the listing of Saudi Arabian Oil Co., known as Aramco, in what could be the largest ever IPO.
Foreign investors have been concerned about the corruption campaign’s lack of transparency, with well-known Saudi businessmen like billionaire Prince al-Waleed bin Talal detained for two months without explanation. Many say those concerns are likely to linger.
While comprehensive data on money flows in and out of the country is hard to come by, Saudi Arabia-focused equity funds saw big outflows in the aftermath of the November arrests, data from EPFR Global shows. This year, such funds have started to see inflows as oil prices have risen.
“The biggest concern is stability,” said Shahzad Hasan, a London-based portfolio manager at Allianz Global Investors. “For years, the ruling family had an informal pact about how to rule and the situation was predictable. I’m concerned this might turn the apple cart.”
A spokesman for the Saudi royal court referred all inquiries to the government communications entity which didn’t respond to requests for comment. A spokeswoman for the Saudi embassy in Washington said the crown prince’s visit to the U.S. was planned ahead of the corruption crackdown and referenced government data that showed $5.46 billion of capital flowed into the country in January, a near record.
The crown prince is set to meet with British Prime Minister Theresa May and discuss the Aramco listing, among other matters, according to the people familiar with the matter. That visit underscores how the Saudis are still weighing options for where to list the IPO’s international portion, a debate that has stalled the deal. Prince Mohammed favors New York, and Saudi energy minister and Aramco chairman Khalid al-Falih, who will attend the London meeting, prefers the U.K., The Wall Street Journal has previously reported.
A Downing Street spokesman declined to comment, and the Saudi embassy in London didn’t respond to a request for comment.
While plans for the U.S. trip haven’t been completed, Prince Mohammed is likely to go to Washington in early March and visit New York and Silicon Valley, according to some of the people familiar with the matter.
“It is the kingdom roadshow to show that the economy is thriving, the business environment is safe and that it is keen on its U.S. relationship,” said a senior Saudi official.
The Saudis will meet with U.S. oil companies, according to some of the people familiar with the matter. But the Saudi government has a long list of non-energy projects about which it is talking to foreign companies or investors. That includes talks between Aramco and Amazon to set up a massive data-storage center, a space tourism venture with British businessman Richard Branson and talks with a French company to establish dairy farming in the desert kingdom.
Riyadh has said it wants to raise an estimated $200 billion by privatizing state assets in the coming years.
Prince Khalid bin Salman, the Saudi ambassador to the U.S. and a brother of Prince Mohammed, is helping organize the crown prince’s trip to America, according to a spokeswoman for the Washington embassy.
Even before the roadshow, Saudi officials have been contacting foreign business and investors to reassure them that dealing with Saudi is safe, according to some of the people familiar with the matter.
Prince Khalid has been contacting U.S. companies, including in the oil industry, according to these people. The spokeswoman for the Saudi embassy in the U.S. says the ambassador regularly meets with business stakeholders, among others.
The crown prince also wants to reassure the French government over bilateral economic ties after the detention of Saudi billionaire Prince al-Waleed on unspecified corruption allegations charges had alarmed businesses in France.
Prince al-Waleed, who has large holdings in western companies such as Twitter, had helped coordinate major investments in Saudi Arabia by French investors. He was released last Saturday and claims his innocence, according to people close to him.
Prince al-Waleed has returned as the chairman of his company, Kingdom Holding Co., it said in a statement Thursday.
A French executive, who said he didn’t want to be identified because of the sensitivity surrounding the arrest of Prince al-Waleed but whose company works with the prince, said he remained concerned about the lack of clarity over any settlement the tycoon had made with the government to secure his release.
Most of the 350 detained in November on accusations of financial wrongdoing have been released, and Saudi Arabia said it has collected more than $100 billion from its detainees.
Many who work closely with Saudi businesses say they have yet to be reassured by the recent releases because neither the government nor the former detainees have spoken publicly, in any great detail, about what happened.
For foreign companies, entering Saudi has historically been facilitated by local agents—princes or prominent businessmen—who act as legal representatives and promoters. Some executives are concerned they could partner with some only to see them arrested later and lose their investments in the kingdom.
“What happened to the sponsors? That’s the big question,” said Denis Florin, head of Paris-based consultancy Lavoisier Conseil who advises companies trying to enter the kingdom.
Saudi Arabian financial markets have mainly recovered from their fall after the November arrests, but investors point out the kingdom’s assets have benefited from a 10% gain in the oil price since that month.
Investors predict the uncertainty created by the crackdown will linger, hurting the kingdom’s attempt to open up its economy.
Marcus Chenevix, an analyst at investment research firm TS Lombard in London, says the crackdown will reduce corruption and move the country “away from a confusing system of multiple and competing power centers to one powerful center.”
But Mr. Chenevix also says money managers he advises have been pulling money from Saudi assets, concerned by what they see as the opaqueness and volatility of local politics.
“There won’t be a rapid return in confidence in Saudi Arabia,” he said.
