Sources say ownership of King Abdullah Financial District is being transferred to the Public Investment Fund
Saudi Arabia is to transfer ownership of Riyadh's floundering King Abdullah Financial District to the Public Investment Fund (PIF) from the Public Pension Agency (PPA), according to four sources aware of the matter.
The move is an attempt to rescue the project, started a decade ago with the aim of making the Saudi capital a global financial centre, and is another example of the burgeoning power of the PIF, which the Gulf state wants to make the world's largest sovereign wealth fund.
A new approach to the project was outlined in the Vision 2030 package of economic reforms which called for transforming the district into "a special zone that has competitive regulations and procedures, with visa exemptions".
It called for a direct link to the international airport, which would get around the kingdom's restrictive entry policies for foreigners, and increasing the real estate and hospitality facilities in the zone to create an "integrated and attractive living and working environment".
The PIF has chosen JPMorgan as its advisor on the transfer and a feasibility study is currently being undertaken, according to two of the sources, which among other things will establish a valuation of the district and how much compensation will be paid to the PPA.
The PPA governor wasn't immediately available for comment when contacted by Reuters on Monday. Senior representatives of the PIF and KAFD did not immediately respond to requests for comment.
Construction of the King Abdullah Financial District began in 2006, with skyscrapers set to house banks and the financial regulator across a 1.6-million-square-metre planned area -- roughly four times the size of London's Canary Wharf.
But the district, situated in the northern part of Riyadh, has been beset by problems, most recently involving the project's master developer, Saudi Binladin Group, with construction delays and workers protesting at the KAFD site over months of unpaid wages.
It has also so far struggled to find commercial tenants.
Vision 2030 criticised the KAFD as having been conceived "without consideration of its economic feasibility" and without making the necessary efforts to convince the financial community to invest.
Total investment into the KAFD had reached 31 billion riyals ($8.27 billion) by May 2014, PPA governor Mohammad al-Kharashi told Reuters at the time. PPA currently fully owns KAFD through its Al Ra'idah investment arm.
King Salman and Deputy Crown Prince Mohammed bin Salman, who announced Vision 2030 on April 25, have been moving key lieutenants of the reform programme into prominent positions to help achieve their desired aims. On Saturday, veteran oil minister Ali al-Naimi was replaced by U.S.-educated Khalid al-Falih, who was also made chairman of mining giant Ma'aden days before.
Tasked with the district's revival, the PIF is emerging as one of the leading tools being used by Mohammed bin Salman to execute the reform agenda, which also includes a stock market flotation for state oil giant Aramco.
The PIF will likely have to put "a lot more money" into the project once it assumes control, said two of the sources.
Special zones already exist within Saudi Arabia: Aramco has an entire town in Eastern Saudi Arabia to house its workforce, which has luxuries such as cinemas and public swimming pools not found elsewhere in the kingdom.
Most Western expatriates live on gated compounds that allow them to circumvent the kingdom's strict social code, which requires that women wear special garments and restricts interactions between unrelated men and women.
In most cases, Saudi nationals are barred or severely restricted from entering these special zones.
One of the sources said an objective of the feasibility study would be how to manage the KAFD's proposed special visa status to allow for the tens of thousands of Saudi nationals to enter the district daily to work.
It was unclear which social rules would be relaxed in the financial district. In Aramco's compound in Dammam, while the kingdom's zero-tolerance policy towards alcohol remains, women can drive and do not have to cover themselves in public.