Saudi fund seen as investing in UAE utility through back door

Saudi leaders recently appeared to an about-face on a deal to invest a large sum of money with the United Arab Emirates, as the sovereign wealth fund prepared to buy a significant stake in the UAE utility company Utico.

In a December 28, 2016, Reuters release, Utico leaders announced that the public investment fund (PIF) responsible for handling Saudi wealth was going to invest in their company. But the next day, the news service cited PIF fund handlers saying the deal with Utico is not in the works.

According to official Saudi Press Agency reports, an official at the fund called the rumors “baseless and unfounded.”

For a better understanding of what appears to be a quick reversal of a major business arrangement between the two GCC nations, the Gulf News Journal turned to Barish Gagrani, an analyst of investment research and analytics at the research company Aranca.

Gagrani has researched several sectors in India and Middle East for leading buy-side research firms. He currently supports a leading investment firm in researching GCC and MENA markets and identifying appropriate investment opportunities.

Speaking to the journal on January 6, Gagrani described some of the context of the supposed deal, saying that after some false announcements, Utico eventually announced a plan amounting to $147 million to sell a stake in the company to private equity investor ASMA Capital, based in Bahrain.

Gagrani pointed out that although ASMA is headquartered in the smaller GCC country, the Saudi fund does have ownership in that enterprise. Internal ASMA fact sheets show that the Saudi PIF is a shareholder in ASMA, which means the rerouting of the deal is less a complete rejection by the Saudi fund handlers and more of a shell game in which an influenced firm picks up a deal seemingly rejected by one of its backers.
 
However, Gagrani suggested that the final deal was done deliberately, with much attention to detail.

“The deal took place after many rounds of negotiations and due diligence between ASMA Capital and Utico under the advisory services of various leading global consultancy companies,” Gagrani said. “This affirms the strength and effectiveness in Utico’s business model, which has the potential to save millions of dollars in capital expenditure and government subsidies. Sovereign fund investors of ASMA capital who are faced with lower revenues and higher budget deficits have much to gain from such viable infrastructure investments.”

Gagrani also described some of the possible meanings behind the deal.

“We believe this deal would help Utico to pursue its ambitious two-year plan to double its water desalination capacity to around 65 million gallons per day, which will open a host of opportunities for Utico to get involved in other major desalination projects across the GCC region,” Gagrani said. “Utico has sound and established expertise in areas like water transmission, collection, storage and billing.”

The PIF’s investment in Utico, albeit through ASMA, is only one example of how Saudi fund handlers pursue modern acquisitions; for example, a much-touted tech play involves the PIF injecting up to $45 billion in a SoftBank “Vision Fund” related to the impending Internet of Things phenomenon, with American firm Apple chipping in a so far undisclosed amount.