Telecoms

PIF’s $1bn Saudi Telecom sale could be sign of things to come

By Matt Smith, Pramod Kumar

November 14, 2024, 3:55 PM

The Saudi Telecom share sale will take place pre-trading on Thursday through off-market negotiated deals

PIF sells 2% stake in STC
Holdings in 18 other companies
Aramco stake worth $288bn

Saudi Arabia’s Public Investment Fund has offloaded a $1 billion stake in the kingdom’s former telecoms monopoly in a deal that could mark the start of further equity sales as government entities seek to raise money for infrastructure spending.

In October, the International Monetary Fund lowered its GDP growth prediction for Saudi Arabia this year and next because of oil output cuts continuing to the end of 2024.

Reduced oil revenue is pushing the kingdom to find alternative funding for its under-construction giga-projects that it hopes will diversify and expand its economy. In October, a top executive revealed Neom, Saudi’s biggest project, had obtained $24 billion in private sector investment and loans.

On Thursday, the PIF said it sold a 2 percent stake in Saudi Telecom Co (STC) to domestic and international institutional investors.

The PIF now owns 62 percent of STC and is a shareholder in at least 18 other listed Saudi companies, according to AGBI research. Combined, these are worth $443 billion based on these stocks’ closing prices on Wednesday.

The STC stake sale “appears to be part of a financing and funding strategy that the PIF and Saudi government is pursuing”, said Ibrahim Masood, senior director of equity portfolio management at Mashreq Capital in Dubai.

“Saudi sovereigns have issued a substantial amount of debt this year so it’s sensible to also sell some equity to balance the overall funding mix.”

Saudi Arabia sold $26.8 billion of international bonds from January 1 to August 27, 2024, making it the largest emerging market issuer of sovereign and quasi-sovereign international bonds this year.

The kingdom’s sovereign debt totalled SAR1.05 trillion ($280 billion) at the end of 2023, which equates to 25.4 percent of GDP and was up SAR60 billion versus 2022, according to the National Debt Management Center.

The PIF’s most valuable holding in a listed Saudi company is its 16 percent stake in Saudi Aramco, which is worth $288 billion.

Other notable holdings include 16 percent of Saudi National Bank, the kingdom’s largest bank by assets, 74 percent of Saudi Electricity Co, 67 percent of Saudi Arabian Mining Co (Maaden) and 44 percent of Acwa Power. These four stakes are worth $105 billion, according to AGBI calculations.

“Further equity sales by the PIF seem likely although we can only guess in which companies because there are so many variables to account for,” said Masood.

The PIF sold 100 million STC shares for SAR38.60 per share, slightly below market price. On Thursday, the stock fell SAR0.90, or 2.2 percent, to close at SAR40.85

“STC is a dividend play, it’s also a growing company with solid earnings and that’s why the stock has been stable today,” said Hisham Tuffaha, chief investment officer at Riyadh’s Osool & Bakheet Investment Co. STC’s dividend yield is 3.98 percent, S&P Global data shows.

The PIF sold a 6 percent stake in STC in December 2021, raising SAR12 billion ($3.2 billion) in a secondary offering priced at SAR100 per share, according to a PIF statement, more than double its stock price at the time. On the day before the sale announcement, its shares closed at SAR45.76

The secondary offering led STC’s shares to rise to a peak of SAR48.40 in January 2022 before it mounted a sustained slide that culminated in a three-year low of SAR34.35 in late February 2023.