Riyadh appoints advisors for football clubs sale

01 May 2017

Government is considering selling about a dozen top-tier clubs to private investors

Saudi Arabia has appointed advisors to sell top-tier football clubs in the country to private sector investors as the kingdom seeks to raise additional finances to fund the fiscal deficit on the back of lower oil prices.

Riyadh is looking at selling stake in close to a dozen football clubs in its football league, according to sources familiar with the matter, who asked not to be identified as the discussions are private.

It has hired Riyadh-based Jadwa Investment and US’ Deloitte to help it with the deals. Local law firm AS&H in cooperation with Clifford Chance are the legal advisor on the potential transactions.

Football clubs in Saudi Arabia are controlled by the General Sports Authority (GSA), a government agency responsible for regulating the sports activities in the kingdom. The clubs, which are run primarily by government grants, sponsorships and donations by wealthy royals and notable businessmen in the kingdom, are considered a drain on the government finances, the sources said.

Some of the A-list players in the country’s top league earn millions of riyals in salaries and the running and maintenance of sporting facilities also cost the exchequer.

This is the second time that Riyadh has lined up the sale of football clubs. Sources say that Deloitte did a similar study to privatise football club before the 2014 oil price slump, however, a deal at that time did not materialise.

There is more urgency now to sell the clubs, however the valuation of stadiums and parcels of lands which were allocated to some of the clubs over the years, is expected to take longer. There is no timeline when the valuation process of each of clubs will be finished, sources said.

Saudi Council of Ministers, at the end of November gave a nod to sell the clubs by turning them into companies following the recommendations by the Council of Economic and Development Affairs (CEDA), a government body tasked with the country’s economic transformation.

Abdullah bin Musaed bin Abdul Aziz, the president of GSA at the time had said that the privatisation process would start within six months and the government will initially look to privatise two or four clubs.

It is not clear if the government plans to fully privatise the football clubs or intend to maintain control by part privatising them, sources said adding that the deals are likely to be picked up by Saudi high net worth investors or local business conglomerates.

The sales process has yet to begin, they added.

Deloitte and Jadwa did not respond to request for comments. AS&H in co-operation with Clifford Chance confirmed they were advising on the matter. GSA could not immediately be reached for a comment.

Privatisation revenues

Saudi Arabia relies heavily on sale of hydrocarbons for government revenues and is struggling to bridge the fiscal deficit after the crude price slumped from a mid-2014 peak of $115 a barrel to current close to $50 a barrel level. The kingdom, which was forced to cut spending and shelve billions of riyal worth of projects last year, is trying to radically transform its economy and plans to sell some of the state controlled assets to generate additional revenues.

It intends to sell less than 5 per cent of oil and gas giant Saudi Aramco, the world’s biggest crude exporter, to public in what is billed to be the largest ever share sale in the world. Aramco, which has been the main bread-winner for the kingdom for the past eight decades, plans to list its shares on Saudi Stock Exchange (Tadawul) and a yet to be decided international bourse in 2018.

In addition to tens of billions of dollars which the government is hoping to raise through Aramco’s public float, the kingdom expects its privatisation programme could yield about $200bn in total through full or partial sale of some of the state enterprises, according Vice Minister for Economy and Planning Mohammed al-Tuwaijri.

That number was based on detailed studies of valuations and market demand since authorities announced plans for a privatization drive one year ago, news agency Reuters cited al-Tuwaijri as saying.

Administrative preparations have already been made and Riyadh plans to begin offering assets in four sectors: sports, electricity generation, water provision and grain silos this year.

King Faisal Specialist Hospital and Research Centre in Riyadh is first among the healthcare assets and the government is studying the option of whether to sell off all public hospitals and 200,000 pharmacies, he added.

MEED on 26 April reported that Saudi Grains Organisation, a state-controlled grain silos and flour mills operator, is aiming to begin the prequalification process for privatisation of its milling operations by the end of June. Riyadh has split the company’s milling operations into four special purpose vehicles (SPVs), which currently remain under the ownership of the sovereign wealth fund Public Investment Fund (PIF). The government will sell 100 per cent equities in all of the four SPVs.

MEED in May 2016 also reported that Saudi Grains had appointed UK-based HSBC as financial and transaction adviser on the scheme, with the UK’s Trowers & Hamlin having been appointed as legal adviser.

State-controlled Saudi Electricity Company (SEC) is also being divided in the four generation companies and private the first company this year, MEED reported in November last year.

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