Saudi Arabia Update – August 2018

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Foreign investment

The Kingdom invests in Tesla

Despite the Kingdom’s status as OPEC’s dominant producer, its interest in Tesla has illustrated that it aims to diversify its economy away from crude oil. Tesla CEO Elon Musk recently discussed the Saudi Public Investment Fund’s (PIF) interest in bankrolling his plan to make Tesla a private company. This follows recent revelations that the PIF has already acquired a nearly 5 per cent stake in Tesla. In 2017, SABIC announced plans with Aramco for a US$20 billion crude-to-chemicals plant that could process 400,000 barrels per day in Saudi Arabia. Despite the fact that greater efficiency and electric cars could eventually sap oil demand for transportation, petrochemicals, used for plastics and other materials, are still projected to be a major growth sector for oil use in the coming decades.

Axios – 14 August 2018

Saudi Aramco IPO delayed

For the past two years, Saudi Arabia has prepared to place up to 5 per cent of its national oil company on the stock market. The planned listing and brainchild of Crown Prince Mohammed bin Salman was set to be the biggest IPO ever until King Salman’s advisers informed him that the IPO would undermine the Kingdom’s economy. Energy Minister Khalid al-Falih, however, has stated that the government was committed to conducting the IPO at an unspecified date in the future.

Reuters – 30 August 2018

New bankruptcy law

Sources continue to report that Saudi Arabia’s new bankruptcy law will strengthen in-Kingdom business by easing restructuring and incentivising more foreign investment. Mazen Al-Sudairi, head of research at Al Rajhi Capital, stated: “The new law will protect companies and allow them to show the reality of their financial situation, ultimately improving business transparency.” In this respect, Saudi Arabia is following in the footsteps of the UAE, which has passed a similar law in order to address the economic slowdown worldwide, which has also affected the GCC as a whole. Through the new bankruptcy law, the Kingdom aims to lower its dependence on oil, attract more foreign investment, create more opportunities for SMEs, and create more jobs for Saudi citizens.

Saudi Arabia’s former bankruptcy laws are some of the oldest on its books. The new law aims to:

  • protect companies from financial collapse;
  • raise the Kingdom’s rating as an attractive destination for investments;
  • reassure investors about the validity of their creditors and stakeholders;
  • take into consideration the size of the entity during bankruptcy proceedings;
  • identify small-scale debtors and establish criteria to evaluate their size;
  • set out new procedures for small and larger debtors;
  • establish a Bankruptcy Committee in coordination with the general authority for SMEs;
  • strengthen trust in the credit market and commercial transactions; and
  • enable a bankrupt entity to resume its activities, as opposed to ceasing them entirely. 

The National, UAE – 31 August 2018

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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