November 28, 2022

How to Attract Investments in Saudi Arabia Using Spvs

How to Attract Investments in Saudi Arabia Using Spvs :

In the investment world, the word SPVs is nothing new. SPVs mean Special Purpose Vehicles. They are created for a special purpose –to pool funds together from a group of investors, invest in a single start-up, or launch a new business.

SPVs find their primary use case in venture capitalism. Unlike an investment fund that makes investments in multiple companies, SPVs make only a single investment in one company.

In other cases, SPVs are set up by a parent company to isolate or securitize assets. It helps such a parent company enter risky projects while protecting it from the failure of such a project. Thus, not only are SPVs useful for investing, but they can also help a company protect its assets and perform other financial transactions.
Saudi Arabia and SPVs

SPVs can invest in a wide array of assets like real estate, start-up equity, private company debt, or high-risk investments. Furthermore, SPV investments stand to benefit any company or project that chooses that route. Its potential benefits include risk sharing, capital management, flexibility, and securitization.

With this in mind, it becomes essential that the Kingdom of Saudi Arabia utilize the mechanism of SPVs to the fullest. As one of the world’s fastest-growing, developing economies, Saudi Arabia stands to grow more buoyant economically with SPVs.

How Saudi Arabia can attract Investments using SPVs

Investments generally encourage economic growth. Bringing the unique structure of SPVs into the picture can help secure this growth trajectory in the business space. The following are a few ways Saudi Arabia can attract investments in its economy using SPVs.

1. Structured business settings

As we mentioned earlier, SPVs are used by companies to pool resources together and invest in a single start-up. One key takeaway is that an SPV is a legal entity that exists separately, with its own liabilities and assets. It can be established as a Limited Liability Company, Limited Partnership, a Trust, or a Corporation. For SPVs to be helpful as an investment method, there has to be a structure that guarantees that it thrives.

2. Encouraging innovation

Attracting and retaining innovation is an essential factor in encouraging investments. Thankfully, Saudi Arabia is one country that is known for its approach to sustaining innovative practices. In turn, as innovation grows, investments come in, and where there is a rise in investments, the economy booms.

3. Favourable governmental policies

In 2018, the financial regulator of Saudi Arabia issued the Special Purpose Entities bylaws. These rules are an umbrella force that can protect investors and provide a legal identity for the investment fund. A Special Purpose Vehicle can now be licensed to issue asset debt-backed instruments under the SPE bylaws. This governmental policy allows room for Special Purpose Vehicles and their investment roles to thrive in Saudi Arabia.

Conclusion

Although Special Purpose Entities are technically easy to set up and can help manage risks effectively, they still have a disadvantage. If the SPV asset performs poorly, it can expose its investors to unprecedented risks.

Therefore, for anyone interested in SPV as an investment form, due research and understanding of the pros and cons that come with it are of utmost importance.

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