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Saudi Arabia sells off Canadian assets as dispute escalates

The Financial Times logo The Financial Times 8/9/2018 Simeon Kerr in London

Since Crown Prince Mohammed bin Salman became heir apparent last year Riyadh has adopted an assertive approach to achieve its foreign and domestic policy aims: Mohammed bin Salman, Saudi Arabia's crown prince, sits for a photograph ahead of a meeting with Theresa May, U.K. prime minister, not pictured, inside number 10 Downing Street in London, U.K., on Wednesday, March 7, 2018. emorandums of Understanding for 14 trade deals are due to be signed during the isit of the prince, but British officials don't expect a decision on who will ost the initial public offering of state oil company Aramco. Photographer: Will Oliver/Pool via Bloombeg© Bloomberg Mohammed bin Salman, Saudi Arabia's crown prince, sits for a photograph ahead of a meeting with Theresa May, U.K. prime minister, not pictured, inside number 10 Downing Street in London, U.K., on Wednesday, March 7, 2018. emorandums of Understanding for 14 trade deals are due to be signed during the isit of the prince, but British officials don't expect a decision on who will ost the initial public offering of state oil company Aramco. Photographer: Will Oliver/Pool via Bloombeg Saudi Arabia is selling Canadian assets as the kingdom escalates its response to Ottawa’s criticism of the arrest of a female activist.

The Saudi central bank and state pension funds have instructed their overseas asset managers to dispose of their Canadian equities, bonds and cash holdings “no matter the cost”, two people with direct knowledge of the orders said.

Third-party managers are estimated to be mandated to invest more than $100bn of Saudi funds in global markets, executives say. While the proportion of that figure invested in Canadian holdings would be “fairly small in absolute terms,” the asset sale sent a strong message, one of the people said.

The sell-off began on Tuesday and underlines how the Gulf monarchy is flexing its financial and political muscle to warn foreign powers against what it regards as interference in its sovereign affairs. “This is severe stuff,” said one banker.

The row between Riyadh and Ottawa erupted after Chrystia Freeland, Canada’s foreign minister, called for the release of Samar Badawi, a prominent Saudi women’s rights activist who has family in Canada. Ms Badawi and another activist were arrested last week as part of a government crackdown against dissenting voices, human rights groups said.

In response to Ms Freeland’s criticism, Saudi Arabia expelled the Canadian ambassador, froze new trade and investment with the G7 member, suspended a student exchange programme and halted Saudi Arabian Airlines flights to Canada. Riyadh on Wednesday said it was also suspending all medical treatment programmes in Canada and working to transfer Saudi patients out of the country.

The kingdom’s actions carry echoes of the measures Saudi Arabia and its regional allies have taken against Qatar since imposing a regional blockade on the Gulf state a year ago.

The Saudi Arabian Monetary Authority, the central bank, had foreign assets of $506bn in July, most of which are invested in US Treasuries. Pension funds such as the General Organisation for Social Insurance and the Public Pension Agency manage additional assets.

The Public Investment Fund, the Saudi sovereign wealth fund, also has $250bn of assets under management, including stakes in global companies such as Tesla and Uber, as well as local assets.

Since Crown Prince Mohammed bin Salman became heir apparent last year Riyadh has adopted an increasingly assertive approach to achieve its foreign and domestic policy aims. He has pledged to open up the conservative kingdom, but has also displayed a decreasing tolerance for criticism.

Authorities rounded up more than 300 princes and businessmen late last year and detained them at the Ritz-Carlton in Riyadh in a crackdown on corruption.

The extraordinary clampdown spooked the foreign business community at a time when Prince Mohammed is trying to attract foreign investors into the kingdom to help realise his vision or modernising the oil-dependent economy.

Riyadh is also the forefront of a four-state embargo against Qatar, accusing the Gulf state of financing terrorism. Doha denies the allegations and the stand-off is in its second year.

When the embargo was imposed on Qatar, fund managers said Saudi Arabia asked them to remove Qatari investments from their portfolios and refrain from using the stock exchange in Doha.

German companies have also complained about difficulty in securing contracts in Saudi Arabia since Berlin criticised Riyadh’s role in Lebanese politics and moved to halt arms sales to countries involved in the war in Yemen, including Saudi Arabia.

Analysts say Riyadh’s decision to sell off Canadian assets risks further undermining business confidence in the kingdoms.

“These sort of actions are not going to assure minds about the stability of doing business there,” said a major emerging markets investor.

Additional reporting from Peter Smith and Andrew England in London

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