Saudi sovereign wealth fund issues first bonds

Saudi Arabia’s sovereign wealth fund launched its first ever bond issue on October 5, marketing $3 billion in “green bonds”. In a statement, the Public Investment Fund said the issue attracted more than $24 billion in offers.

The PIF issued bonds with 5-year-, 10-year and 100-year maturities. They carry coupons of 5%, 5.25% and 5.375% respectively.

The fund said the bonds would “finance or refinance” investments in a variety of environmentally beneficial projects. These include “renewable energy, energy efficiency, sustainable water management, pollution prevention and control, green buildings and clean transportation”.

In filings with the London Stock Exchange, the fund stated that the securities may meet the definition of green bonds set out by the International Capital Markets Association. Some bonds may also be “issued in accordance with the Climate Bonds Standard set out by the Climate Bonds Initiative”. The PIF warns that the bonds may not meet every investor’s green standards.

Rating agencies Fitch and Moody’s gave the PIF investment-grade ratings of A and A1 respectively.

The PIF claims to have 2.3 billion riyals ($608 billion) in assets under management. “The majority of the Fund’s assets are represented by portfolio companies domiciled in the Kingdom [of Saudi Arabia],” the filings report. The Sovereign Wealth Fund Institute ranks the PIF as the sixth-largest sovereign wealth fund in the world, and third largest in the Middle East.

The green bonds form part of a wider environmental agenda promoted by the Saudi government. Riyadh launched the Saudi Green Initiative in October 2021, pledging to achieve net zero by 2060. The PIF – which has a majority stake in Lucid Group, a US-based maker of electric vehicles – has undertaken to provide 70% of the funding for renewable energy generation projects in the period to 2030. 

More broadly, the Saudi government is pursuing a programme of economic development and diversification, branded Vision 2030. This programme includes reducing domestic fuel subsidies, increasing labour-force participation, entering new services sectors such as tourism, and several “giga-projects”. These projects include the Neom “smart city”, the Qiddiya infrastructure company and the Roshn real-estate development initiative.

Robert Mogielnicki, senior resident scholar at the Arab Gulf States Institute in Washington, says it is “useful” for the Saudi government to demonstrate its continued ability to issue debt “in a tough market”.

“But I’m not sold on the idea that a Gulf SWF issuing debt is going to move the economic diversification needle in a major way,” he adds.

In its LSE filings, the fund warns that “there can be no assurance that the Fund’s investment in these Giga-Projects will generate the expected return or have the intended economic impact”.

Crown Prince Mohammed bin Salman, the country’s de facto ruler since becoming heir in 2017, has been the driving force behind this wider reform agenda. However, he has faced widespread condemnation for human-rights violations, most notably the murder of dissident Jamal Khashoggi in the Saudi consulate in Istanbul in 2018.

Mohammed is also chair of the PIF board, by virtue of heading the Council of Economic and Development Affairs. Yasir Othman Al-Rumayyan, the chair of the board at the Saudi Aramco oil company, is the fund’s governor. Almost all the other board members are government ministers.

“Oil rents” made up 17.7% of Saudi Arabia’s GDP in 2020, according to World Bank figures. The Opec+ grouping of oil-producing countries announced it was making a nominal production cut of 2 million barrels per day on October 5 to support oil price levels.