Global busi­ness qui­etly re­turns to Saudi Ara­bia

The Charlotte Observer (Sunday) - - News - BY MICHAEL J. DE LA MERCED, STAN­LEY REED AND DAISUKE WAKABAYASH­I New York Times

Six months af­ter agents from Saudi Ara­bia mur­dered and dis­mem­bered the writer Ja­mal Khashoggi, com­pa­nies are no longer shy­ing away from the Arab kingdom.

The movie the­ater gi­ant AMC says it is mov­ing ahead with am­bi­tious ex­pan­sion plans for dozens of cin­e­mas there. Hun­dreds of in­vestors thronged this month to place $100 bil­lion in or­ders for the first in­ter­na­tional bond sale tied to Saudi Ara­bia’s state­backed oil com­pany. Google has a ma­jor data cen­ter in the works.

Many com­pa­nies con­tend that they are, in part, help­ing to open up the deeply con­ser­va­tive so­ci­ety. A screen­ing of Marvel’s “Black Pan­ther” at a re­pur­posed con­cert hall in early 2018 lifted a 35-year ban on movie the­aters, with men and women at­tend­ing the show­ing to­gether.

But the math is sim­ple: There is se­ri­ous money to be made from work­ing with the kingdom that lives off the world’s most prof­itable com­pany, Aramco. A few weeks ago, Aramco dis­closed that it gen­er­ated $111.1 bil­lion in net in­come last year. That was more than Ap­ple, Royal Dutch Shell and Exxon Mo­bil com­bined.

“It is noth­ing per­sonal,” J. Robin­son West, the man­ag­ing di­rec­tor of the BCG Cen­ter for Energy Im­pact, a Wash­ing­ton­based con­sult­ing unit, said about why in­vestors and banks flocked to the bond sale.

To cor­po­ra­tions around the world, the Oc­to­ber death of Khashoggi, a colum­nist for The Wash­ing­ton Post who was stran­gled when he en­tered the Saudi Con­sulate in Is­tan­bul, was a con­tro­versy to avoid. Busi­ness lead­ers pulled out of a high-pro­file, gov­ern­mentspon­sored con­fer­ence in Riyadh, and have since largely kept quiet about their com­pa­nies’ ties to the kingdom.

But global busi­nesses and Saudi Ara­bia’s de facto ruler, Crown Prince Mo­hammed bin Sal­man, rec­og­nize a need for each other.

Saudi Ara­bia for­tunes fall and rise with the price of oil. In­creas­ingly, it wants fresh in­vest­ment and busi­nesses to sup­port its fast-grow­ing pop­u­la­tion – 33 mil­lion peo­ple, most of whom are younger than 30 – and to win­now a nearly 13% un­em­ploy­ment rate.

The prom­ise of Saudi Ara­bia, which saw oil prices rise by a third this year to about $ 71 a bar­rel for Brent crude, has been too rich for many big com­pa­nies to pass up. Google, JPMor­gan Chase and the Ja­panese tech­nol­ogy gi­ant SoftBank are among the busi­nesses that have kept Saudi Ara­bia as a part­ner.

“We thought long and hard, and con­cluded that the best course of ac­tion was to go for­ward,” Adam Aron, the chief ex­ec­u­tive of AMC, said in an in­ter­view de­scrib­ing his com­pany’s de­ci­sion to open at least 40 new the­aters there over the next five years.

“It’s the right thing to do for the peo­ple of Saudi Ara­bia,” he said this month. “They have been de­prived of go­ing to the movies for decades.”

Google has been work­ing on a Saudi data cen­ter, its first in the Mid­dle East and an im­por­tant hub for its cloud com­put­ing ser­vices, for more than a year. Rev­e­la­tions about Khashoggi’s killing had not de­railed its plans. When asked about its busi­ness with the kingdom, Google said that it had signed a memo of un­der­stand­ing with Saudi Aramco in early 2018 “to ex­plore po­ten­tial es­tab­lish­ment of cloud ser­vices to serve our cus­tomers in the Mid­dle East. There are no fur­ther up­dates to share at this time.”

JPMor­gan’s chief ex­ec­u­tive, Jamie Di­mon, can­celed an ap­pear­ance at the Riyadh con­fer­ence in Oc­to­ber, but showed up to pitch Saudi Aramco’s bond deal to in­vestors in New York two weeks ago.

The in­vest­ment firm Black­stone is still plan­ning to spend money from a $40 bil­lion in­fra­struc­ture fund, of which $20 bil­lion is meant to come from Saudi cof­fers, ac­cord­ing to a per­son briefed on the mat­ter who was not au­tho­rized to speak pub­licly about the firm’s in­vest­ment plans.

And SoftBank, whose nearly $100 bil­lion Vi­sion Fund for tech­nol­ogy investment­s counts the Saudi gov­ern­ment as its big­gest backer, has had lit­tle dif­fi­culty craft­ing deals us­ing Saudi cash. It has par­tic­i­pated in 20 investment­s since the Khashoggi news emerged, ac­cord­ing to data from S&P Global Mar­ket In­tel­li­gence.

Many Western com­pa­nies were tight-lipped about their con­tin­ued in­vest­ment in Saudi Ara­bia for weeks af­ter Khashoggi dis­ap­peared.

But in Novem­ber, SoftBank’s chief ex­ec­u­tive, Masayoshi Son, pub­licly ar­tic­u­lated what many cor­po­rate ti­tans have qui­etly used as their jus­ti­fi­ca­tion for work­ing with the kingdom. “As horrible as this event was, we can­not turn our backs on the Saudi peo­ple as we work to help them in their con­tin­ued ef­forts to re­form and mod­ern­ize their so­ci­ety,” Son told an­a­lysts and in­vestors at an earn­ings pre­sen­ta­tion in Tokyo.

Still, some com­pa­nies have de­cided to back away.

En­deavor, the Hol­ly­wood tal­ent agency, re­turned a $400 mil­lion in­vest­ment from the Saudis ear­lier this year and sev­ered its re­la­tion­ship with the kingdom’s lead­ers. The Bri­tish en­tre­pre­neur Richard Bran­son, who re­turned from a 2017 visit to the kingdom wowed by Crown Prince Mo­hammed’s vi­sion, re­coiled af­ter Khashoggi’s mur­der. Bran­son sus­pended his di­rec­tor­ships in Saudi tourism ven­tures and cut off con­ver­sa­tions with the Public In­vest­ment Fund.

In the un­likely event that more Western com­pa­nies fol­low suit, the kingdom has a con­tin­gency plan: work­ing in­creas­ingly with al­lies in Asia.

Coun­tries in­clud­ing China, South Korea and Thai­land have be­come key cus­tomers for the Saudis as the United States re­duces its de­pen­dence on im­ported oil be­cause of do­mes­tic shale pro­duc­tion.

In turn, the Chi­nese oil gi­ant Sinopec has be­come a high-pro­file in­vestor in the kingdom, with a re­fin­ing joint ven­ture with Aramco and a re­search and devel­op­ment fa­cil­ity at a science park called Dhahran Techno Val­ley, in eastern Saudi Ara­bia.

TASNEEM ALSULTAN NYT file

A pro­jec­tion of King Sal­man and Crown Prince Mo­hammed bin Sal­man ap­pears at a Jan­uary con­fer­ence at the Ritz Carl­ton in Riyadh, Saudi Ara­bia.

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