Saudi sovereign fund PIF considers buying stake in power firm ACWA

Qatar Gulf News Sources say that SWF could increase holding to up to 35% in Saudi utilities player.

Saudi Arabia’s main sovereign wealth fund, Public Investment Fund (PIF), is considering buying a stake in Riyadh-based ACWA Power, which operates power and water plants around the world, sources familiar with the matter told Reuters. PIF, which already owns a 13.7 percent stake in ACWA indirectly through a subsidiary, invited investment banks last month to pitch for the role of advising it on a potential ACWA deal, according to four sources, declining to be named due to the sensitivity of the matter.

Talks are still at a preliminary stage, and neither party has appointed an advisor, said two of the sources, who are based in the Gulf. Privately held ACWA describes itself as an investor, developer, co-owner and operator of a portfolio of plants in Europe, Asia and Africa that generate more than 23 gigawatts of power and produce 2.5 million cubic metres of desalinated water a day. The fund declined to comment, when contacted by Reuters on Monday. ACWA also declined to comment.

PIF’s investment strategy aims to help the government diversify the Saudi economy away from oil into power and other sectors. PIF’s subsidiary Sanabil Investments, which focuses on making direct equity investments in local companies and projects, acquired a 13.7 percent stake in ACWA in January 2013. It is unclear how the new investment will be made at this stage: whether it would be structured as a stake increase by Sanabil or whether the PIF will take a direct stake, a third source said.

One of the Gulf-based sources said PIF would like to increase its total holding to anywhere between 25 and 35 percent. The fund has also been behind a number of domestic investments in recent months – ownership of a stalled financial district project in Riyadh is to be transferred to the fund, and the fund is expected to make an investment into King Abdullah Economic City.

PIF is seen as a key driver of the kingdom’s Vision 2030 plan to diversify the economy, with the authorities aiming to turn it into the world’s largest sovereign wealth fund. Central to the reform plan is greater involvement by the private sector in the Saudi economy, including in the power sector: it has called on raising the percentage of power plant electricity generation through strategic partners to 100 percent from 27 percent currently. Vision 2030 has also called for generating 9.5 gigawatts of renewable energy, an area in which ACWA has developed significant expertise with around half of its portfolio in “clean” energy.

Other shareholders in ACWA include Saudi’s Public Pension Agency, which bought a 5.7 percent stake at the same time as Sanabil, and World Bank unit International Finance Corp, which invested $100 million for an undisclosed holding in mid-2014.