India Investment Signals Saudi Fund Remains Lifeline for TMT Firms

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VIP

Saudi Arabian sovereign wealth fund Public Investment Fund (PIF) has been on a tear in 2020 as part of its overall quest to cash in on long-term bets made on industries injured by the pandemic. 

Media and tech properties have gotten their fair share of attention from PIF, which is led by the controversial Crown Prince Mohammed bin Salman. He controls $320 billion in assets, but has been linked to human rights abuses and the murder of Washington Post columnist Jamal Khashoggi in the fall of 2018.

Gulf News reported Monday that PIF is ready to scoop up a 2.3% stake in Jio Platforms, a subsidiary of Reliance Industries (one of India’s most-valuable firms), for $1.5 billion. On Thursday, PIF confirmed it would be investing $1.5 billion for that 2.3% Jio stake. The fund was said to be eyeing a minority stake in Jio Platforms, which has garnered investments seemingly nonstop in 2020, earlier in May

In late April, PIF disclosed it owned a 5.7% stake (valued at about $500 million) in Live Nation, the business of which has been crushed by pandemic-induced stay-at-home orders. And in mid-May, U.S. regulatory filings revealed the PIF had purchased stakes each valued at around $500 million in companies like Disney, Facebook, and Cisco in the first three months of 2020 alone. But the kingdom’s industry interest is broad, and it’s moved aggressively to make that clear. The sovereign fund in early April disclosed its 8.2% stake in Carnival, the world’s biggest cruise operator, which posted a Q1 loss of $781 million in the wake of the havoc wreaked on its business by the pandemic. The PIF has in total invested nearly $8 billion in 20 U.S. and European blue-chips like BP, Boeing, and Royal Dutch Shell since the beginning of the year.

“You don’t want to waste a crisis… We are looking into any opportunities,” PIF governor Yasir Al-Rumayyan said at a virtual event in late April, providing color on the rationale behind the fund’s wide-ranging 2020 buying spree. Still, certain types of players appear to be having greater attention being paid to them by the PIF by others. Al-Rumayyan cited airlines, energy and entertainment companies as examples of industries of interest.

These words from the kingdom hint that the Saudi cash infusion into the entertainment biz is far from over, which begs the question: Who’s up next?

Of course, the in-talks and already-being-considered deals could close. The kingdom moved to quell piracy concerns that have stalled its planned $350M+ takeover of English Football Club Newcastle United. Meanwhile, the PIF earlier in May made an offer to acquire Warner Music Group, which is one of the three major recorded music labels, valued at over $12 billion.

MBS could choose to focus on entertainment companies willing to do business with Saudi Arabia. One such company could be sports-focused streamer DAZN, which has struggled during the COVID-19 pandemic that has ravaged the live sports landscape, and is said to be seeking funding via equity sale, or even an outright sale. DAZN did stream an encore of the late 2019 Ruiz-Joshua heavyweight championship that took place in Diriyah, Saudi Arabia.

Another PIF target might be the exhibition business, which has been dealt a crushing double blow from the pandemic that has forced theater closures and turned consumers toward at-home entertainment options (like SVOD) that had already been concerning theaters in prior years. For example, AMC announced it was raising $500 million in debt in April, which followed on the heels of analyst predictions that the company, known as the largest U.S. theater chain, would go bankrupt come summer due to theater closures. The company also worked with the PIF in 2019 to expand the number of AMC theaters in Saudi Arabia. 

The degree to which the pandemic will aid the PIF’s dealmaking efforts shouldn’t be underestimated. While the deal chatter surrounding the PIF in 2020 indicates some U.S. and European companies may be viewing Saudi money as less radioactive than it was a year ago, criticisms will still be lobbed on companies that receive funding from the kingdom. 

And yes, companies seeking investment will be cognizant of this. But when faced with the choice of going out of business or taking money from the PIF, it’s not illogical to assume many business owners would go with the latter. 

The likely greater willingness of companies to do business with the PIF is timely for a Saudi Arabia looking for home runs. In early May, Saudi Arabia tripled taxes from 5% to 15% on basic goods and services in the midst of low oil prices during the pandemic. In Q1 2020, state revenues were down 22% from Q1 2019, while oil revenues were down 24% year-over-year. At current oil prices and government spending levels, Saudi Arabia will run out of money in three to five years, forcing it to take on additional debt, American Enterprise Institute’s Gulf analyst Karen Young recently told the NYT.

(Disclaimer: SRMG, a Saudi publishing and media company which is publicly traded, remains a minority investor in PMC, Variety’s parent company.)

(Update: PIF confirmed 6/18 taking a stake in Jio)