Saudi Arabia doubles down on Softbank bet with extra US$45 billion

[DUBAI] Saudi Arabia is preparing to double down on its bet that Masayoshi Son can pick the technology giants of the future. The fund will make another US$45 billion investment in Son's second massive Vision Fund.

The Public Investment Fund, or PIF, is set to make the investment as it looks for ways to deploy a US$170 billion windfall it's expecting over the next three to four years. That money would come from the sale of a stake in Saudi Basic Industries Corp. and the initial public offering of state oil company Saudi Aramco, according to PIF chairman Mohammed Bin Salman - who is also Saudi Arabia's crown prince.

The PIF wants to be a key investor in the second US$100 billion investment fund that SoftBank Group Corp. chief executive officer Son plans to raise, Prince Mohammed said in an interview with Bloomberg. That would bring the PIF's contribution to the two funds to US$90 billion, he said.

"We have a huge benefit from the first one," he said. "We would not put, as PIF, another US$45 billion if we didn't see huge income in the first year with the first US$45 billion."

Since unveiling a strategy in 2016 to transform the PIF from a sleepy domestic holding company into the world's largest sovereign fund, it has made a series of bold investments. Many have focused on technology companies yet to make a profit. In addition to its commitment to the first Vision Fund, the PIF made a US$3.5 billion investment in Uber Technologies Inc., built up an almost 5 per cent stake in Tesla Inc. and then put US$1 billion into its rival, Lucid Inc. The PIF also agreed to put US$20 billion into a US infrastructure fund run by Blackstone Group LP.

BIG RETURNS

Speaking at an event in Riyadh last year, Mr Son said that investments made by the first Vision Fund were already paying off. The fund had made a return of over 20 per cent in its first five months, he said.

That fund, which also raised money from one of Abu Dhabi's sovereign funds and Apple Inc., is about four times the size of the largest venture capital fund ever created and bigger than any private equity fund in history. Mr Son told Bloomberg Businessweek in September that he plans to raise a new US$100 billion fund every two or three years, and will spend around US$50 billion annually.

In less than a year since the fund first began making investments, it has already committed US$65 billion to acquire big stakes in Uber, WeWork Cos., Slack Technologies Inc. and GM Cruise LLC.

RAISING MONEY

Making another significant investment in SoftBank's next Vision Fund would help the PIF boost its assets, which have already risen to more than US$300 billion, Prince Mohammed said. Currently the fund's biggest assets are mostly local equities, including the stake in Sabic and holdings in Saudi Telecom Co. and National Commercial Bank.

"We are now above US$300 billion, we're getting close to US$400 billion," he said. "Our target in 2020 is around US$600 billion. I believe we will surpass that target in 2020."

That's even higher than the target the PIF announced last year, when it said it wanted to grow its assets to US$400 billion by 2020. At the end of 2015, the fund had US$152 billion of assets, according to a document published last October outlining its 2020 plan. That document also said the PIF aimed to generate annualised nominal returns of 4 per cent to 5 per cent in the years to 2020, up from 3 per cent in 2014 to 2016.

The PIF raised US$11 billion in its first ever borrowing earlier this year as it looks to use leverage to boost its returns. The fund is also set to receive around US$70 billion to US$80 billion from the sale of its 70 per cent stake in Saudi Basic Industries Corp. to Saudi Aramco in 2019, Prince Mohammed said. That would then be followed by proceeds from the initial public offering of Aramco, which could raise another US$100 billion, he said.

BLOOMBERG