Saudi Arabia's PIF raises $7bn from first murabaha facility as it seeks to boost investments

The fund plans to make cuts to its foreign portfolio as it focuses on the local market

Sindalah Island is part of Neom in Saudi Arabia's north-west. The project is part of the PIF's portfolio. Photo: Neom

Saudi Arabia's Public Investment Fund plans to raise $7 billion from its first murabaha credit facility, as the fund diversifies its funding sources to boost investments.

A murabaha facility follows an Islamic financing structure which does not involve any interest payments, where the two parties agree on the contractual terms.

The financing is part of the fund's medium-term capital-raising strategy and is supported by a syndicate of 20 international and regional financial institutions, the PIF said on Monday.

“This inaugural murabaha credit facility demonstrates the flexibility and depth of PIF’s financing strategy and use of diversified funding sources, as we continue to drive transformative investments, globally and in Saudi Arabia,” said Fahad Al Saif, PIF’s head of the global capital finance as well as the investment strategy and economic insights divisions.

The sovereign wealth fund, which is rated Aa3 by Moody’s with a stable outlook and A+ by Fitch with a stable outlook, has also raised funding from sukuk issuances over the past two years.

The PIF has four main sources of funding: capital injections from the government, government asset transfers, retained earnings from investments, and loans and debt instruments.

The PIF is one of the world’s largest sovereign wealth funds, with more than $930 billion of assets under management. The annualised returns for the sovereign fund since 2017 rose to 8.7 per cent in 2023, up from 8 per cent in 2022, the fund said in its annual report in August.

The fund is leading Saudi Arabia's Vision 2030 initiative, which aims to diversify its economy away from oil.

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The PIF lost its position as the world's most active sovereign wealth fund last year, with Abu Dhabi's Mubadala emerging as the top spender, a report last week by industry specialist Global SWF said.

The Saudi fund's investment spending dropped by 37 per cent to $19.9 billion last year, from $31.6 billion in 2023, the report said.

The PIF saw its US equity portfolio decline by 24 per cent last year. At the start of 2024, the fund sold shares in 18 companies, valued at about $13 billion, including from gaming major Activision Blizzard, cruise company Carnival and entertainment company Live Nation, the report said.

The fund plans to cut its foreign portfolio by about a third as “there is a big paradigm shift in how PIF is deploying investments”, its governor Yasir Al Rumayyan said in October.

It plans to focus heavily on the local market and has established 92 new companies such as Neom, Red Sea Development and Aalat, among others, he said at the time.

PIF governor Yasir Al Rumayyan said the fund plans to focus on the domestic market. Reuters

“Initially we had less than 2 per cent investments internationally and that was when we had $150 billion in [assets under management] … and it grew all the way up to 30 per cent. Now our target is to bring it down to between 18 and 20 per cent,” he said at the Future Investment Initiative conference in Riyadh.

“Having said that, the absolute dollar amount is still growing because our AUMs are still growing. So, it is down as a percentage term, but dollar value is rising.”

The fund has continued making some key international investments. In December, the PIF and Ardian completed a €4 billion ($4.2 billion) deal to buy a combined 37.62 per cent stake in Heathrow from Spanish construction firm Ferrovial and other shareholders of FGP Topco, the parent company of Heathrow Airport Holdings. Ardian and PIF acquired 22.6 per cent and 15 per cent, respectively, of FGP Topco.

Meanwhile, AI has emerged as the biggest focus area for the fund, Mr Al Rumayyan said in October.

“The reason why we are investing in AI is that Saudi Arabia is very well positioned to be a global hub and not just be a regional hub in the AI sphere,” he said. The abundance of land and the low cost of energy in the kingdom complements its ambitions as a global AI leader, he added.

Saudi Arabia plans to create a fund of about $40 billion to invest in AI and the PIF has held discussions with US venture capital company Andreessen Horowitz and other financiers to raise interest, according to media reports in March.