RIYADH (Reuters) – Saudi Arabia’s Public Investment Fund (PIF) risks being pulled deeper into Crown Prince Mohammed bin Salman’s domestic projects, curbing its international ambitions and tying its fortunes closer to its home market, four sources familiar with its strategy said.

Unusually for a sovereign wealth fund, which typically is solely focused on generating wealth for future generations, PIF has a two-pronged mandate – it is also expected to develop domestic projects that will reduce Saudi Arabia’s reliance on oil. That means PIF acting as a cornerstone investor on some major hometown ventures with foreign investors expected to join in.

The projects include a high-tech economic zone dubbed NEOM planned for an area close to the size of Belgium, an entertainment park outside Riyadh called Qiddiya being built on a site 2-1/2 times larger than Disney World, and a luxury tourist resort off the Red Sea coast that will span more than 90 islands.

With the exception of Six Flags (SIX.N), a U.S. theme park group, which signed a deal to operate at Qiddiya, no other foreign partners or investors have been publicly announced for the ventures. Six Flags did not respond to a request for comment.

Now, two years after the projects were announced, there is a risk they could be delayed or scaled back if foreign funding does not materialize because PIF won’t be able to put up all the money required in the current timeframe, according to two of the sources.

PIF’s domestic responsibilities also make it more challenging for the $300 billion fund to resume its previous frenetic pace of overseas investment. It has not made any foreign investments so far this year, according to Refinitiv data.

PIF declined to comment on the involvement of foreign capital and the impact the domestic projects could have on its plans. It said it was still aiming to have a quarter of its assets invested abroad by next year, and half by 2030 compared to 15% currently.

PIF also said significant progress had been made in financing plans for the domestic projects.

“Each Giga-Project is developing tailored partnership and financing models, through discussions and coordination between PIF, the respective management teams and lending institutions,” the fund said.

It declined to say how much it has invested so far or the amount of financing being discussed. PIF does not release information about its financial performance.

The fund lost out on an estimated $100 billion windfall when the initial public offering of oil giant Saudi Aramco was shelved last year. It has partially filled the gap by raising debt and selling a stake in a petrochemicals company.

As the world’s largest oil exporter, Saudi Arabia has the means to step in if private funding doesn’t materialize for the projects. The state could inject fresh capital into PIF or finance the ventures from the central government budget but analysts said it would likely want to avoid that.

“The government has not stated any intention to inject fresh funding into the PIF and we think it will try to limit its on-budget exposure, conscious of still-high fiscal deficits and wanting to try to preserve its balance sheet strengths,” said Krisjanis Krustins, a director of sovereigns at Fitch Rating agency.

The government’s communications office did not respond to a Reuters request for comment.

DIVERSIFICATION

Saudi authorities have said NEOM, tucked away in the desert kingdom’s northwest corner, will cost $500 billion. Estimates have not been released for Qiddiya or the Red Sea Project, but a source familiar with the latter said its initial phase would cost $2.5 billion.

Local media have reported the cost of the infrastructure alone for Qiddiya would reach up to 30 billion riyals ($8 billion) and the project would eventually be worth tens of billions of riyals. Reuters could not independently verify these figures.

Reuters spoke to more than a dozen people for this story, including bankers, lawyers and corporate advisers. Most of them declined to be named because of sensitivities around PIF, which is chaired by the 33-year-old crown prince, who also controls the kingdom’s economic, energy and security policies.

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Cyrille Urfer, who used to lead PIF’s investments in global public markets, said it was inevitable the fund would play a major role in the crown prince’s plans to diversify the economy away from crude.

“At the end of the day, the owner and the one who takes the decision is the Saudi government, and PIF is the tool that is supervising the execution of these projects,” said Urfer, who now works at Geneva-based asset manager Unigestion.

The Red Sea Development Company, set up to develop the tourism scheme, said it was talking to banks for financing but declined to provide details. Two banking sources told Reuters the company had so far only approached local lenders.

For international investors, reputational risk is a factor when investing in Saudi Arabia. British billionaire Richard Branson suspended his directorship of the Red Sea Project after the murder of Saudi journalist Jamal Khashoggi last year by operatives close to the crown prince.

Last week, the United Nations called for the crown prince to be investigated after it said there was credible evidence linking him to the killing. The government rejected the report.

A spokeswoman for Branson’s company, Virgin, told Reuters his position had not changed.

The Qiddiya Investment Company said it had been in talks with potential investors for the last year.

“We expect this pattern will increase significantly as more of the detailed plans of the project become known,” the company said in a statement.

MULTI-DECADE

Since the crown prince took charge of PIF in 2015, it has transformed from a staid state holding company into an aggressive purchaser of assets. It has doubled in size, bought stakes in companies such as Uber and Tesla, committed half the funding for a planned $40 billion infrastructure fund with U.S. private equity firm Blackstone, and allocated $45 billion to a technology fund run by Japan’s SoftBank.

For a factbox on PIF’s investments click on

Still, PIF has some way to go before it fulfils the crown prince’s ambition for it to be the world’s largest sovereign wealth fund. It is currently one-third the size of Norway’s wealth fund – the global leader – which invests all its assets abroad.

The PIF could invest in a second technology fund currently being raised by SoftBank. But with Saudi Arabia estimated to be running a larger budget deficit this year due to higher government spending, people familiar with PIF say it is unlikely to contribute a large amount, if any.

PIF has declined to comment on its intentions for the second technology fund. Son has said initially SoftBank would likely be the only investor.

To raise funds for its investments, PIF sold a 70% stake in petrochemicals firm Saudi Basic Industries Corp (SABIC) (2010.SE) to Aramco in March for $69 billion and borrowed $11 billion from the loan market. It will get half of the SABIC proceeds when the deal closes next year and the rest will be paid over two years.

PIF plans to borrow at least another $8 billion later this year via a bridge loan.

A NEOM spokesman said funds for the mega-zone would come from PIF, the finance ministry, investments from local private investors, foreign direct investment, public-private partnerships and other international financial institutions and banks.

“PIF will need the help of many investors,” said a person who advised it on projects, including NEOM.

SoftBank is considering investing or partnering in the Saudi projects although no money has yet been committed, a source familiar with the matter said.

Three bankers who looked at the three projects say foreign money has been put off so far by a lack of detail on what protections financiers would have in the event of a default and scepticism about when they would see returns.

A PIF strategy paper puts the projects’ expected return at 8.5% without specifying a timeline. It describes them as “multi-decade” endeavors.

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