[Al Arabiya’s article on the recent purchase of a $3.5 billion stake in Uber included insights from Patrick W. Ryan]
by Paul Crompton
News that Saudi Arabia’s sovereign wealth fund has pumped $3.5 billion into ride-hailing app Uber – reportedly the largest single investment ever made in a private firm – is a sign of new things to come, analysts say.
The massive stake in San Francisco-based Uber, which values itself at around $62.5 billion, gives the kingdom’s Public Investment Fund a share of about 5 percent. It also gives Saudi a seat on Uber’s board of directors.
The announcement marks the first major foreign investment by the kingdom’s wealth fund since its April rollout of ‘Vision 2030,’ a plan to transform the country’s economy by the end of the next decade, and marks a break from a long-held focus on securing conservative, low-risk foreign assets.
And for Uber, Saudi’s cash injection represents a major corporate coup.
The ride-sharing app has “accomplished a slow-motion IPO without ever approaching the public stock market,” a report in Time magazine said.
John Sfakianakis, the economic research director at the Gulf Research Center, based in the Saudi capital Riyadh, said the “tremendous benefits” from the stake include the fund’s diversification.
Saudi’s Public Investment Fund holds around $160 billion in assets – much of it domestic petroleum refineries and local joint-stock ventures – but the Uber stake is part of a wider, $2 trillion expansion scheme.
Sovereign stake
The Uber stake could open up the fund to receive “a lot of proposals from the venture capital space, as well as private equity,” Sfakianakis added.
Patrick Ryan, a US-based analyst whose consulting firm tracks Saudi-American trade ties, said that the stake indicated that the wealth fund’s managers, led by Saudi national Yasir al-Rumayyan, had “done their homework.”
“This is a forward-looking investment, and if Uber is in fact valued not just by the Saudi’s valuation but in the industry, [as being] in the 60 to 70 billion dollar range, and shows the capacity to expand… I think they’ve probably done their homework and found a solid investment.”
The stake may also reassure global markets. Even though Riyadh is drawing down its financial reserves in an era of collapsed oil prices, it still seems to feel rich enough for large investments, Reuters reported.
Tech appetite
The deal could signal the fund’s possible appetite for further investments in the global tech sector, said Yakir Gillis, an analyst at London-based business intel firm Alaco.
“From Saudi Arabia’s perspective, Uber may have been of particular interest due to its proven interest in expanding its operations in the Arab Middle East,” he told Al Arabiya.
Since 2014, Uber has expanded its operations in Saudi, and serves the largest cities. Uber claims about 80 percent of its 130,000 passengers in the conservative kingdom are women, due to Saudi’s ban on them driving,
Omar al-Ubaydli, an economist and director at the Center for Strategic International and Energy Studies in Bahrain, Saudi’s island neighbor, sees Saudi’s new seat on Uber’s board as a key factor of the deal.
The seat will be occupied by Rumayyan, the Saudi wealth fund’s managing director, who since February last year has also served as an advisor to the royal court.
“Expect Saudi Arabia to benefit from the business experience gained via the board seat to help it launch its own sharing apps tailored to the unique needs of the Saudi economy,” added Ubaydli.
‘Wow effect’
Despite the “wow effect” triggered by the purchase of the stake, Sfakianakis, the Saudi-based economist, said that a “mixture of more traditional, vanilla investments” by the fund will follow.
Qatar and the UAE, Saudi’s two wealthiest neighbors in the oil-rich Gulf, both have large sovereign wealth funds. The Abu Dhabi Investment Authority, located in the UAE capital, holds an estimated $800 billion in assets, much of held in US real estate and the banking sector.
The Qatar Investment Authority, which is believed to hold $250 billion, has known stakes in Volkswagen, Siemens and several other Western giants.
But Saudi’s Uber investment shows “a lot of new thinking going on,” said Ryan, the US-based analyst. “I guess we’re going have to change what we’re accustomed to, in terms of no longer being surprised… by the Saudis looking to achieve their vision of 2030.”
Last Update: Thursday, 2 June 2016 KSA 21:00 – GMT 18:00