Almarai is the Arabian Gulf's largest dairy firm. Sammy Dallal / The National
Almarai is the Arabian Gulf's largest dairy firm. Sammy Dallal / The National

Business

Saudi Arabia has Dh8bn stake in Almarai

Public Investment Fund owns 16.3 per cent of the Riyadh-based dairy farm operator and food processor

Bloomberg

15 October, 2017

Saudi Arabia’s sovereign wealth fund became the third-biggest shareholder in Almarai as it boosts investments at home and abroad.

The Public Investment Fund owns 163.2 million shares, or 16.3 per cent, of the Riyadh-based dairy farm operator and food processor, according to a regulatory filing that did not disclose the identity of the seller. The stake is valued at about 9 billion Saudi riyals (Dh8.81bn) based on October 12 closing prices, according to data compiled by Bloomberg.

The PIF is at the centre of Saudi Arabia’s efforts to diversify revenue away from oil under the Vision 2030 economic transformation plan. The fund could eventually control more than US$2 trillion in assets, according to the deputy crown prince Mohammed bin Salman. It holds assets worth about $110bn in listed Saudi companies, including stakes in companies such as Saudi Basic Industries, and National Commercial Bank.

Almarai rose 3.6 per cent to 57 riyals as of 11:15am in Riyadh, contributing the most to gains for benchmark Tadawul All Share Index. The shares are up 4 per cent this year, while the kingdom’s main stock gauge is down about 3 per cent.

The Savola Group remains the biggest shareholder of Almarai, with a 34.5 per cent stake, even after it sold shares valued at about 1.12bn riyals last month.

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Read more:

Saudi food companies agree on merger talks

Saudi Arabia food industry expected to grow at 5.9% a year

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Separately, Saudi Arabia's central bank may raise the maximum loan-to-deposit ratio for commercial banks if that is needed to help the economy, the central bank governor Ahmed Al Kholifey told Al Arabiya television.

Mr Kholifey was speaking on the sidelines of meetings of the IMF and the World Bank in Washington at the weekend. The central bank last raised the ratio in February 2016, to 90 per cent from 85 per cent.

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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.”

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