Wall Street Journal
Larger Tesla Stake by Giant Saudi Fund Faces Hurdles
By Maureen Farrell
August 14, 2018
The common perception is that Saudi Arabia’s oil wealth gives the fund unlimited resources, but in reality the kingdom’s finances are tight, advisers and government officials say.
Saudi Arabia has become one of the world’s most high-profile investors over the past two years, as its 32-year-old Crown Prince, Mohammed bin Salman, seeks to diversify the economy away from its reliance on oil.
The vehicle at the center of the effort is the sovereign-wealth fund, known as the Public Investment Fund, or PIF. It has committed $65 billion to two enormous outside funds—up to $20 billion for a planned infrastructure investment vehicle managed by Blackstone Group BX -0.94% LP and $45 billion for a technology fund led by SoftBank Group .9984 -2.63% It has also written a total of more than $4 billion of checks to Silicon Valley startups including Uber Technologies Inc., Magic Leap Inc. and Noon.com.
PIF is also on the hook to contribute an unknown sum to Neom, the $500 billion futuristic megacity to be constructed in northwest Saudi Arabia abutting the Red Sea.
It hasn’t been called on to pony up any of the cash committed to Blackstone, as the private-equity firm has yet to make an infrastructure investment out of the new fund. So far, the PIF has met all its obligations to SoftBank’s Vision Fund, people familiar with the matter said. The fund recently said it had deployed about one third of its commitment capital.
Still, Saudi officials have become concerned about the kingdom’s ability to fund those commitments, let alone make a big new one, people familiar with the matter said.
The people are skeptical the fund has any serious plans to take a sizable stake in Tesla beyond the nearly 5% it recently bought.
As of last year, PIF officials and outside consultants were struggling to calculate the fund’s value, The Wall Street Journal has reported. Estimates ranged from $200 billion to $300 billion, including assets like a 70% stake in Saudi Basic Industries Co., or Sabic, one of the world’s largest petrochemical companies.
Either way, helping fund a buyout of Tesla, which the electric-car maker’s Elon Musk says the country has been interested in, would be an enormous and complicated undertaking.
It would come after an even bigger and more complex effort—to conduct an initial public offering of state oil company Saudi Arabian Oil Co., or Aramco—ran into major difficulties.
After working with more than a dozen banks, law firms and other outside advisers for more than two years on the process, preparations for Aramco’s IPO have stalled amid doubts about the company’s readiness to handle the scrutiny that accompanies a public listing.
More recently, the government and PIF have looked at other avenues to raise financing, as they scramble to find an alternative to the $100 billion they had hoped to raise in the IPO.
Saudi Sovereign Funding
The kingdom’s Public Investment Fund has been in discussions with Tesla about increasing its nearly 5% stake. It’s unclear how PIF would come up with the funding for a large deal.
The government has been working on a plan by which Aramco would buy a controlling stake in Sabic from PIF. The deal, if successful, could put $50 billion to $70 billion into the fund’s coffers. While the kingdom is rushing to execute this transaction, one person close to the process said it was unclear whether it will come together.
The sovereign-wealth fund is also currently in the market for several billion of international loans, some of the people said.
Even though oil prices recently have rebounded, the government is running a budget deficit this year after announcing the biggest fiscal stimulus package in the country’s history.
Saudi Arabia is nearing a national debt limit of 30% that it set to help clear its fiscal deficit by 2023. The country turned to the international debt markets for the first time two years ago and has since raised at least $40 billion to fuel spending.
—Miriam Gottfried contributed to this article.