Exclusive: King Abdullah Economic City courts investors, port may consider IPO or private placement, CEO says

Zone to target leisure, entertainment industries, and launch multimillion dollar SME fund

King Abdullah Economic City (KAEC), Saudi Arabia's multifaceted industrial zone overlooking the Red Sea, will court investors this week for 7 billion riyals worth of projects, and the hub's port may consider a public offering or a private placement in the future, said group chief executive of Emaar the Economic City (EEC), which is developing KAEC.

"The Time Forum (where they will exhibit the projects) is part of KAEC's contribution to realizing the aims of Vision 2030 by providing an attractive environment for national and international companies," Fahd Al Rasheed told The National. "KAEC is developing in many high-growth areas of the economy and the forum provides a platform where we can showcase our plans and objectives for the future and offer investors an opportunity to share in our growth."

The metropolis, established in 2005, will showcase investment opportunities within the KAEC Industrial Valley and across commercial and tourism projects as well as real estate. Located about an hour and 20 minutes outside of Jeddah, and roughly the size of Brussels, KAEC was launched a decade ago, as part of the kingdom's wider economic national transformation program that seeks to wean the country off oil and cultivate a non-oil economy that caters to the pharmaceutical, automotive and manufacturing industries. The hub has developed 45 million square meters, which is set to increase to 75m sqm over the coming five years. About 120 regional and global companies that include Aramex, Mars, Pfizer, Petra, and Sanofi are operating from KAEC. The zone which currently has 7,000 residents will host about 28,000 by 2020.

“This pace of growth is unprecedented,” Mr Al Rasheed said.

The area also includes the King Abdullah Port, among the world’s 100 largest ports and second biggest on the Red Sea. It occupies a total area of 15 square kilometres and may consider a public offering or private placement in the future as it vies to be amongst the 10 largest ports in the world, Mr Al Rasheed said.

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“An IPO could be contemplated when the port is ready for that…by end of next year in terms of capacity we will be the largest [on the Red Sea]. We want to be in the top ten in the world,” Mr Al Rasheed said at his office overlooking the Red Sea. “The IPO discussion is a matter of whether the investors want it…everything is on the books as a possibility it could be a private placement. It depends on what happens in port capacity in the next three to four years.”

The port's throughput increased 14 per cent in the first half of 2017 to 821,694 TEU (twenty-foot equivalent unit) from the same period a year earlier. Once complete, KAEC, which has the world's deepest 18-meter water berths, will be able to handle 20 million containers.

“It took us a decade to get here, but we have been working on being a non-oil economy for that amount of time. We have succeeded in many areas, one is being a global logistics and manufacturing hub,” Mr Al Rasheed said. “It’s the most competitive space in the world. There are 242,000 cities competing for human capital. Every city needs to understand its value proposition, to provide the basics to serve that value proposition. We wanted to be a global logistics and manufacturing hub and we were willing to put mega investments into infrastructure and the ecosystem of that sector and we succeeded.”

Mr Al Rasheed now has his sight set on leisure and entertainment to tap into new industries that the kingdom is cultivating under Vision 2030 that aim to nurture tourism with multibillion dollar projects that leverage the strategic location of the Red Sea in addition to the kingdom's status a  prime destination for religious pilgrims.

“We moved on, we pivoted towards leisure and entrepreneurship. With the growth that Saudi Arabia sees in its population with the resources that it has our success has been to be able to leverage that strong local market,” Mr Al Rasheed said.

The zone has built a state-of-the-art golf course and academy as well as a five-star hotel that have attracted visitors from within and outside the kingdom. In total, KAEC is building 38 projects in the leisure field. Year to date, KAEC has attracted 300,000 visitors up from 160,000 last year and 15,000 in 2015.

“We are on the way to becoming a leisure destination…The potential is tremendous,” Mr Al Rasheed said.

KAEC is also positioning itself as an education destination that caters to Saudi youth and entrepreneurs. Prince Mohammed Bin Salman College for Business and Entrepreneurship, affiliated with Babson College offers an MBA education and courses in entrepreneurship to KAEC’s 7,000 residents, and students from within and beyond the kingdom. KAEC wants to cater to the kingdom’s young population - 70 per cent of Saudis are under the age of 30 - and small and medium sized enterprises which are the back-bone of the non-oil economy.

The zone is launching a joint fund with the SME Authority that will provide budding or emerging businesses with access to financing.

“We have identified venture capital and seed funding as a major area of development in Saudi Arabia,” Mr Al Rasheed said. “We are setting up a US$20 million fund that could grow with time and if it offers the right benefit to entrepreneurs to $200 million or $500 million…We’re looking at what we’re offering and to whom: it’s about structure, about what stage of financing we’re going to offer: is it seed (or) is it venture capital.”

Contribution to the fund is split evenly between KAEC and the SME Authority.

The zone has to date raised $7.9bn, is liquid and unlikely to raise additional financing from the bond market, Mr Al Rasheed said.

"We are very comfortable with the funding despite the current economic situation, we are at our highest liquidity ever since our establishment. We have lots of cash and we have lots of unutilized long term credit. The banks have offered us sufficient long-term funding…so therefore we are not looking at a bond issuance," Mr Al Rasheed said. "Up to 2025 we have 50-billion-riyal capex programme so about $14bn is our direct investment. The key thing is to see us as a hyper-growth institution. We are owned by Emaar Economic City. We have our recurring revenue growing at about 44 per cent over the past three years."

Looking forward KAEC plans to expand the logistics footprint in the zone's industrial valley.

“That is going to provide a significant area of growth for us,” Mr Al Rasheed said. “We are proof of two things, number one that a non-oil economy exists in Saudi Arabia and can exist and thrive in a big way. Number two is that impossible is nothing. People told us that you can’t build a port of this scale, you can’t do it privately, you can’t attract non-oil industries, you can’t do tourism, you can’t do leisure, you can’t build affordable housing at scale. We have done it all.”