Shifting Political Landscape in U.S. Prompts Saudi Arabia to Rethink Financial Strategy
With U.S. political climate unclear, Saudi’s sovereign wealth fund could pause investments
Saudi Arabia is re-evaluating its multibillion-dollar U.S. financial strategy because of shifts in the American political landscape, including whether to go elsewhere with the public stock debut of its state oil company, according to people involved in the planning.
Two events—the recent passage of legislation that could allow U.S. terror victims to sue Saudi Arabia and the election of Donald Trump, a vocal supporter of the bill—prompted the reassessment by senior Saudi officials and outside advisers, people involved in the discussions said.
Saudi Arabia’s sovereign-wealth fund has paused its U.S. investments until they can figure out the implications of the bill and the new direction of the White House, said a person familiar with the fund’s decision making.
The initial public offering of Saudi Arabian Oil Co., the world’s biggest oil producer better known as Aramco, tentatively set for next year or 2018, could raise more than $100 billion in proceeds and rank as the largest in IPO history. The prospect has set banks scrambling for a deal that could bring $1 billion in fees.
While Saudi officials haven’t decided where to list the shares, bankers say the New York Stock Exchange is the best place to debut such a large offering. The government has been meeting with officials from numerous exchanges, including London, people familiar with the process said.
Saudi officials and investors are also looking at how they will invest money from the kingdom’s massive Public Investment Fund. Saudi officials have indicated they are effectively turning the sovereign-wealth fund into a war chest for non-oil investments abroad—a coffer that would expand with proceeds from the Aramco IPO.
A spokesman for the fund declined to comment on the terror legislation’s passage and how the fund is reacting to it. Saudi Aramco and NYSE declined to comment on the prospect of the IPO being held outside the U.S.
The Saudis have been particularly alarmed by the federal legislation approved in September to allow victims of the Sept. 11, 2001, terrorist attacks to sue Saudi Arabia to seek damages. Surviving relatives have accused Saudi Arabia of supporting the 9/11 attackers, 15 of 19 of whom were Saudi. Saudi Arabia denies any official connection to the attacks.
The prospect of being found liable for the attacks has made Saudi leaders worry that big transactions in the U.S. could expose their assets to legal judgments, said people involved in the country’s investment planning.
Saudi Arabia had beefed up its lobbying operation to wage a furious effort to defeat the terrorism legislation. After Congress overrode a veto of the bill by President Barack Obama , lobbyists for Saudi Arabia pressed lawmakers to amend it. Lobbyists have argued that the measure is too broad and could have the unintended result of prompting lawsuits against the U.S. by foreign individuals.
Those lobbyists also had raised the specter that the law could affect Saudi Arabia’s U.S. investment plans. A shift in Saudi Arabia’s U.S. investing strategy now could become a negotiating point in the kingdom’s broader relationship with the U.S.
Many in Washington expected legislators to soften the law after the November elections, something Senate Majority Leader Mitch McConnell (R., Ky) hinted at in September. At that time, former Secretary of State Hillary Clinton was forecast to win the election. The White House declined to comment.
But congressional leaders haven’t revisited the law since Mr. Trump’s victory, and have now adjourned until next year, likely leaving the law to the next Congress and a president who has indicated no interest in changing it.
Mr. Trump was strident in his support of the bill. He called Mr. Obama’s veto shameful and said it would “go down as one of the low points of his presidency.”
A Saudi Aramco employee sits by the company’s stand at the Middle East Petrotech 2016, an exhibition and conference for the refining and petrochemical industries, in Manama, Bahrain, in September. ENLARGE
A Saudi Aramco employee sits by the company’s stand at the Middle East Petrotech 2016, an exhibition and conference for the refining and petrochemical industries, in Manama, Bahrain, in September. PHOTO: HAMAD I MOHAMMED/REUTERS
In a statement before Congress voted to overturn the veto, Mr. Trump said: “If elected president, I would sign such legislation should it reach my desk.” Mr. Trump didn’t respond to requests for comment.
Mr. Trump has said he is a friend of Saudi Arabia, and picked Gen. James Mattis, a longtime supporter of Saudi Arabia, as his defense secretary. Yet he has also questioned U.S. military support to the country.
In another potential challenge to Saudi Arabia, Mr. Trump has been an advocate for increasing U.S. oil production, in part to limit imports.
Saudi companies have stakes in U.S. refineries and are trying to expand into petrochemicals. But Trump adviser Harold Hamm, the chief executive of oil producer Continental Resources Inc., said recently that Saudi Arabia shouldn’t be allowed to own petrochemical plants in the U.S., since it would collide with U.S. business interests by having the plants process Saudi oil, rather than buying from U.S. producers.
“They move in just their oil, nobody else,” said Mr. Hamm, who was Mr. Trump’s top energy adviser during the presidential campaign. “We’re on to that. It shouldn’t be permitted.”
The Saudi government, through a spokesman, declined to comment on Mr. Hamm’s statements.
The offering is part of a Saudi strategy to reduce its reliance on oil and diversify its economy. Under a plan devised by the country’s deputy crown prince, Saudi Arabia is planning to offer a portion—likely 5% or so, say people familiar with the matter—of Aramco on public markets. Proceeds from the offering would be used to invest domestically and abroad.
In June, the fund put $3.5 billion into ride-hailing company Uber Technologies Inc. Even during those negotiations, the U.S. political climate was a concern for the Saudi investors and their advisers, says a person familiar with the process.
But at that point, those people thought there wouldn’t be enough votes in Congress to override Mr. Obama’s veto. After completing the deal, the Saudi fund was weighing large investments in other Silicon Valley tech companies, said two people familiar with the matter.
In June, Deputy Crown Prince Mohammed bin Salman met with several top venture capital investors in Silicon Valley and indicated he planned to do more deals such as the investment in Uber.
In September, Congress voted to override Mr. Obama’s veto.
The following month, the Saudi fund said it would invest $45 billion in a fund run by Japanese internet and telecommunications giant SoftBank Group Corp.
Several people familiar with the Saudi government’s investment plans say Saudi officials decided to make the huge investment in SoftBank after the terrorism legislation, and the money that went into SoftBank could have gone directly into U.S. investments or U.S. investment firms. There were concerns about their exposure if they invested directly, one person said.
The Saudi fund was also interested in SoftBank on its own merits, said a person familiar with the matter, including the ability to put a large amount of money to work with a single investment and the likelihood that the fund would have access to deals from some of the world’s top entrepreneurs.
Some of the money that went to SoftBank appears likely to end up in the U.S. via SoftBank investments. SoftBank Chief Executive Masayoshi Son met with Mr. Trump at Trump Tower in New York on Dec. 6 and told reporters afterward he would invest $50 billion—some of it from the fund the Saudis backed—in the U.S. and create 50,000 new jobs.
As a passive investor in the SoftBank fund, the Saudi sovereign-wealth fund won’t be able to dictate where the SoftBank money goes, and it could still ultimately make sizable investments in the U.S., one person said.