The Saudi investment king who no longer rules alone

By Hadeel Al Sayegh and Saeed Azhar

DUBAI (Reuters) - The prince who's the international face of Saudi business may no longer be able to call all the shots.

For years, Prince Alwaleed bin Talal, Saudi Arabia's self-styled Warren Buffett, has made hundreds of millions of dollars by investing in companies from Citigroup (NYSE:C) to Uber (NYSE:UBER) to Twitter (NYSE:TWTR) with almost complete autonomy.

Now, his Kingdom Holding investment firm counts Saudi Arabia's Public Investment Fund (PIF) as a minority shareholder and the powerful sovereign wealth fund is unlikely to sit on the sidelines, sources familiar with the matter said.

The wealth fund, which is at the heart of Crown Prince Mohammed bin Salman's ambitious plan to diversify the Saudi economy, will want Kingdom Holding's investment committee to have more power over decision making than in the past, two sources with knowledge of Kingdom's business told Reuters

"(PIF) will want to be an active investor," said a sovereign wealth fund investor in the Gulf. "The investment committee of Kingdom Holding is essentially Alwaleed, and I can't imagine the PIF being at the whims of the prince."

The PIF, Kingdom Holding, Prince Alwaleed and his spokesman all declined to comment when contacted by Reuters about what PIF's minority stake would mean for future investments.

Alwaleed, 67, had long kept a tight grip on Kingdom's shares, owning all but 5% traded on the Saudi stock market until PIF purchased a 16.87% stake for $1.5 billion last month.

The deal came more than four years after Prince Alwaleed was swept up in an anti-corruption drive ordered by the Crown Prince and held for nearly three months at Riyadh's Ritz-Carlton along with scores of royals, senior officials and businessmen.

Most detainees were released after reaching financial settlements and Prince Alwaleed said in March 2018 that he had struck a confidential and secret deal with the government.

It was not clear whether the PIF purchase was related to the settlement. A spokesman for Prince Alwaleed, the grandson of Saudi Arabia's first king Abdulaziz and Lebanon's first prime minister Riad Al Solh, has said it was purely a business deal.

The PIF deal was struck at Kingdom Holding's lowest share price this year, with no premium. Bankers who usually work with the PIF or Alwaleed were not engaged for this deal, two sources familiar with the matter said.

'CHANGE OF TACK'

The Saudi state took direct controlling stakes in the businesses of some Saudi entrepreneurs detained in 2017, including the Binladen construction group and media company MBC, as part of the settlements securing their release.

Analysts said, however, that the intervention in Kingdom Holding marked a shift in strategy by the Saudi government, as the other stakes are being held by the Ministry of Finance (MoF) rather than the wealth fund.

"It is an indication of a change of tack," said James Swanston, Middle East and North Africa economist at Capital Economics. "With PIF now holding the stake, it may now be seen more as an investment opportunity."

The PIF's role is to earn enough income through investments to develop new sectors in the Saudi economy whereas the Ministry of Finance is more the guardian of day-to-day spending and is much less strategic or interested in risk, said Jim Krane, research fellow at Rice University's Baker Institute.

Alwaleed's investment style has focused on new opportunities that could be very lucrative but carry risk, as well as looking at undervalued assets, said one of the sources with knowledge of Kingdom's business.

"The PIF is essentially buying a stake in Prince Alwaleed's successful investing track record. As long as Alwaleed demonstrates he can still pick winners, Saudis will benefit," said Jim Krane, author of "Energy Kingdoms: Oil and Political Survival in the Persian Gulf."

Alwaleed rose to international prominence after making a big successful bet on Citigroup in the 1990s and he was an early investor in Apple (NASDAQ:AAPL).

The prince and Kingdom also made a joint investment of $300 million in Twitter in 2011 and he raised his stake in 2015. Last month, he agreed to roll a stake now worth $1.89 billion into Elon Musk's takeover deal, rather than cashing out.

SUCCESSION

While PIF's move may affect Prince Alwaleed's room for manoeuvre, Kingdom Holding will benefit from the sovereign wealth fund's political and financial clout when it comes to dealmaking, the two sources close to Kingdom said.

Since becoming a more active investor in 2015, the sovereign wealth fund has taken some bold steps to raise its profile in the world of business and sport.

It took a $3.5 billion stake in Uber before its listing, invested $45 billion in Softbank (OTC:SFTBY)'s inaugural technology fund, bought 80% of British soccer club Newcastle United last year and has disrupted the world of golf with its new LIV league.

The PIF now manages more than $600 billion of assets though its investment record has been mixed.

It made a huge profit from investing in electric vehicle maker Lucid before it listed, but its Softbank investment has been more volatile as rising rates and geopolitical instability whiplashed high-growth tech stocks.

The wealth fund is backing the Crown Prince's mega projects in his Vision 2030 economic diversification plan.

Property consultant Knight Frank estimates projects to develop Saudi Arabia's nascent tourism industry and other sectors, which includes building a vast futuristic green city called NEOM for $500 billion, are worth over $1 trillion.

But Riyadh has struggled as many foreign investors as hoped and the PIF could benefit from Alwaleed's relations with key players in the hotel industry thanks to stakes in Four Seasons as well as the Fairmont, Raffles and Swissotel chains.

Despite his high-profile image, Alwaleed has kept close to his roots. He often heads deep into the Saudi desert, where he spends time with guests and meets tribesmen and their families.

The fact his son Khaled bin Alwaleed has forged his own path, investing in technology, real estate, food manufacturing and vegan chains through his KBW Ventures and KBW Investments, has raised the question of succession, three sources said.

One source from the world of finance said PIF could propose a candidate to be groomed by the prince as a successor.

"You take the prince out of the equation, and it's just a Saudi investment holding company," the person said. "I don't think many of these deals would have been done without him."

($1 = 3.7518 riyals)