Saudi Arabia’s Public Investment Fund signed an agreement to invest in aviation services company Saudia Technic, a subsidiary of aviation major Saudia Group, as the kingdom seeks to boost non-oil income and diversify its economy away from hydrocarbons.
Saudia Technic, formerly known as Saudia Aerospace Engineering Industries, provides services across aviation maintenance, repair and overhaul segments (MRO), including line, base, components and engines, according to a statement from the PIF on Friday.
The PIF and Saudia Group will transform Saudia Technic into a “national MRO champion” by investing in infrastructure, improving efficiency and capturing market growth in Saudi Arabia over the next decade, the statement added.
The value of the investment was not disclosed.
“The investment in Saudia Technic is a significant milestone as we unlock capabilities, localise expertise and create a first-class, world-leading aviation sector in Saudi Arabia,” Raid Ismail, co-head of Middle East and North Africa direct investments at PIF, said.
Saudi Arabia, the Arab world’s largest economy, aims to diversify its economy away from oil as part of its Vision 2030 initiative.
Its PIF is one of the world’s largest sovereign wealth funds, with about $620 billion in assets under management.
The deal is in line with the PIF’s wider strategy to develop 13 sectors as part of the kingdom’s diversification strategy.
The fund has been involved in a broad range of projects in sectors including aviation, tourism, sports, gaming, camel milk, pharmaceuticals and cars.
Saudia Technic’s ambition is to become the “MRO of choice” for domestic airlines and global partners seeking access to the Saudi market, the PIF said.
The investment will support the development of an approximately 1 million square metre MRO village in Jeddah, including a jet propulsion centre, it added.
The new MRO village will increase hangar capacity and the number of component shops.
It will include the construction and operationalisation of an engine test cell that will serve next generation wide-body and narrow-body aircraft engines, according to the wealth fund.
“Together with the PIF, we aim to enhance our capabilities, drive innovation and become the MRO of choice for airlines and partners worldwide,” Fahd Cynndy, chief executive of Saudia Technic, said.
Saudi Arabia is seeking to attract more tourists and develop its aviation sector, increasing its contribution to non-oil gross domestic product.
The Saudi Aviation Strategy calls for measures to triple annual passenger traffic to 330 million by 2030 and boost the number of destinations to 250, from 99 at present.
This strategy is backed by $100 billion in government and private sector investment.
The PIF has already made significant investments in the aviation sector. These include plans for King Salman International Airport in Riyadh, which is intended to have capacity for 120 million travellers by 2030.
Other initiatives include the launch of the Helicopter Company, which was created to improve local connectivity, and AviLease, an aircraft leasing company, the PIF said.
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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
