Saudi's PIF signs initial agreement to buy stake in paper company Mepco

Sovereign wealth fund is boosting local investments as part of kingdom's Vision 2030 agenda

Riyadh skyline. The PIF intends to inject up to one trillion Saudi riyals into new projects in the kingdom. EPA

Saudi Arabia's sovereign wealth fund, the Public Investment Fund, has signed a preliminary agreement with Middle East Paper Company to acquire a “significant” minority stake as the fund expands its investments locally.

The PIF plans to subscribe to a significant minority in Mepco for 31.50 Saudi riyals ($8.40) per share, subject to obtaining the Capital Market Authority and other regulatory approvals, Mepco said in a regulatory filing on Sunday to the Tadawul, where its shares are traded.

Mepco's shares were trading at 34 riyals per share as of 11.30am UAE time on Sunday.

Mepco is an integrated paper manufacturer offering products for the packaging, construction and furniture sectors. It supplies the Middle East, Africa, Asia, the Americas and European markets.

Its net profit after zakat and tax last year rose nearly 23 per cent to 270.73 million riyals as revenue grew more than 12 per cent to 1.18 billion riyals.

Mepco said the initial pact with the PIF is “not binding” and will expire on July 31 or “upon entering into a legally-binding subscription agreement by and between Mepco and the PIF, whichever is earlier”.

The terms and conditions of the agreement will need regulatory approval from the Capital Market Authority, the PIF and Mepco's extraordinary general assembly.

One of the world’s largest sovereign wealth funds, the PIF is at the centre of the Saudi Vision 2030 initiative to diversify the country’s economy away from hydrocarbons.

It aims to boost the size of its assets to 4 trillion Saudi riyals by 2025 and create 1.8 million jobs, Yasir Al Rumayyan, governor of the PIF, said this month.

The total volume of the PIF’s assets under management amounted to more than 2 trillion riyals and it aims to double that by 2025, he said.

The PIF has been instrumental in creating more than 500,000 direct and indirect jobs and “intends to create 1.8 million direct and indirect jobs”, Mr Al Rumayyan said.

The PIF also intends to inject up to 1 trillion riyals into new projects in Saudi Arabia and “will continue its efforts to diversify the economy, support local content, develop innovative opportunities for the future and contribute to creating an attractive environment for investments”, he added.

The fund is investing heavily to build new projects in the kingdom.

It is mandated to pump $40 billion to $50 billion into the local economy to generate jobs and boost the non-oil economic base of the country.

In March, the PIF also announced three initiatives to boost the growth of the kingdom's private sector.

They include measures to increase the share of local content spending in PIF’s domestic portfolio to 60 per cent by the end of 2025 under its Musahama programme.

As part of its supplier development programme, the PIF will also seek to upskill local suppliers and vendors to meet the growing requirements of the fund's portfolio companies.

Meanwhile, the fund's private sector hub will provide companies with “greater visibility on supplier and investment opportunities” offered by the PIF and its portfolio entities.

The hub, which is now live and contains more than 100 opportunities, will be regularly enhanced and updated, the PIF said at the time.