After multiple decades of dependence on oil, Saudi Arabia is finally all set to diversify its economy. As decided earlier, after a delay of almost a year, Saudi Arabia is now all set to sell assets worth of $11 billion.
The Arabian Government aims for this money by 2020 through its privatization program that includes the sale of stakes in utilities, soccer clubs, flour mills, and medical facilities. The selling of stock will be done to detach the Arabian Economy from the high influence of oil only. But, the plans of stock sale have been delayed for multiple reasons, especially the introduction of IPO of oil giant Aramco.
According to the National Center for Privatization and PPP that deal with privatization said with the current status of initiatives and the progress made by the Privatisation Supervisory committees, the target seems attainable. And except a few big things, all the projects are on schedule.
As per NCP’s statement, Saudi Arabia will complete the sale of four flour milling companies and Saudia Medical Services facilities by the end of this year.
Jean-Paul Pigat, head of research at Dubai-based Lighthouse Research said privatization is one of the major parts in the large reform process Saudi Arabia has planned. But, it has been missing its target dates, and in comparison with the last year, the macroeconomic conditions may not be conducive for acceleration in privatization this year also.
Here are the details of the Companies, Saudi is aiming to privatize-
Crown Prince Mohammed bin Salman declared the sale of shares in 2016. And announcing the IPO, he said he meant only business by the sale of the shares. And, experts believed it to be the largest IPO in the world. Later, the target year was pushed from 2018 to late 2020 and finally to 2021 so that it can buy a $70 billion stake in the kingdom’s biggest petrochemical company Sabic.
Tadawul, the Middle East’s largest stock exchange, released plans for a public offering in 2014. It also had appointed HSBC Holding Plc. as the financial advisor. It was also scheduled to be done by 2018 but later dragged to the end of 2019. It is expected that inclusion of Saudi stocks in indexes compiled by FTSE Russell and MSCI Inc. may boost the company’s value, ultimately giving larger amount after the sale.
The stake of King Khalid International Airport was also scheduled to be sold in September. But, it was put on hold. The Saudi Civil Aviation Holding Co. is said to have asked local and international investment banks to act as financial advisor to the deal.
There was a plan to sell four flour mills by the Saudi Grains Organisation in 2016. It was also delayed by three years. Potential buyers have filled their application for bidding. HSBC Saudi Arabia is the advisor for this deal.
Ras Al Khair Power Plant-
Ras Al Khair power plant on the east coast was scheduled to be sold at $7.2 billion by 2020. BNP Paribas was hired to advise on this sale. The sale of this plan is a part of the larger plan of privatizing Saline Water Conversion Co. by selling a part of its assets and developing plants.
The plans to privatize the Soccer Clubs were first formulated in 2016. And the sale was scheduled to be ended by 2020. Turki Al Alshikh, former head of the Saudi Sports Authority, predicted to raise money in the range of $800 million to $1.5 billion from this sale. The NCP said that the last year was spent on deciding the legal and commercial framework to cover the use of advertising, sponsorship deals and broadcast rights to be used after the sale.
The NCP also added that along with these big deals, there are also some deals in the pipeline which will be open to the public for holding stakes. They include municipal assets related to commercial-land for development, renewable energy PPP projects in solar and wind, parking centers; a second cargo license station at King Khalid International Airport, the establishment of an agriculture company and independent schools in PPP mode, as well as school buildings on a build-maintain-transfer basis.
In the health sector as well, the NCP will open tenders in PPP mode in radiology, laboratories, hospital commissioning and housing for health facilities staff. It is aiming to get around $7.5 billion from the sale in health care.
The NCP replied when asked about the delay, that they were finalizing on the legal and commercial framework for the sale to happen. They want the best-in-class operators across the globe to participate in the PPP sale. And for investments, they plan to attract long term and reliable investors to Saudi Arabia.
It is indeed an important step by the Saudi Arabia Government to diversify their economy. Oil has been the vital component of their market, and with the reforms, they have in the pipeline, it is expected to have fewer shocks globally in the Oil market if they become successful in diversifying.