Introduction

BY GEORGE HAY

Saudi Arabia’s sale of its crown jewel always risked becoming a Greek tragedy. Ever since the Gulf Kingdom decided in 2016 on a public stock offering to sell 5% of Aramco, the world’s biggest oil producer and its main source of revenue, the interests of the seller and the anticipated horde of international investors have been on a collision course. A crash duly ensued.

Aramco’s ill-starred listing has been through four distinct stages. The genesis of the current strife came in 2017 when Mohammed bin Salman, the Saudi crown prince, insisted on a $2 trillion price tag for Aramco and set investment banks and exchanges around the world competing to make that happen.

That led to stasis, as the difficulties of achieving such a valuation and accommodating Aramco’s myriad environmental, social and governance headaches on a global bourse became clear. In mid-2018, things went quiet. A few months later, the murder of journalist Jamal Khashoggi by the kingdom’s agents made investing in Saudi assets verboten.

MbS should have waited. Instead, he displayed hubris. Saudi overhauled Aramco’s leadership in September and then revived its IPO, despite a drone and missile strike reported by Reuters to have been planned by Iran that knocked out half its oil output. The predictable result was a sort of nemesis. Aramco slashed its price to $1.7 trillion and, after foreign investors largely held back, cut the size of its offering from 3% to 1.5%.

Breakingviews has been covering all the twists and turns of Aramco’s tortuous journey. That’s encompassed our own stab at a discounted cash flow valuation, ongoing probes into where the company could conceivably list, and the masochistic experiences of foreign bankers, sentenced to months of Saturday flights to Aramco headquarters in Dhahran for a demanding client with little hope of fat fees.

Aramco got its deal away, with at least some non-Saudi interest and a book that in the end attracted 4.7 times the amount on offer. But the sale has come at the cost of leveraging its own citizens, companies and neighbours. That could end badly. Either way, MbS’s Vision 2030 programme to diversify the kingdom away from oil has had an imperfect beginning.

First published Dec. 9, 2019

(Image: REUTERS/Maxim Shemetov)

GENESIS

Aramco IPO has limited destination choices

Saudi Aramco IPO is exercise in reverse valuation

Aramco exemption bends London IPO rules to limit

Saudi Aramco’s backup IPO plan runs through China

STASIS

Cox: Aramco and Amazon encourage bad behavior

Saudi’s Aramco plan B is too clever by half

Cox: Global finance has a Saudi Arabia problem

Saudi’s $69 bln asset rejig starts banker payback