Saudi Aramco’s $2T Zombie IPO
bloomberg.com
bloomberg.com
"He may also not need the money as much as he did at the outset of his mission to change the country. Saudi authorities this year reached agreements to recover more than $100 billion (the same amount the Aramco IPO was supposed to provide) from a controversial corruption investigation that saw many of the kingdom’s most prominent subjects imprisoned at the five-star Riyadh Ritz-Carlton. "
https://techcrunch.com/2017/08/09/how-softbanks-100b-fund-is...
That's a lot of money even for SA. ($100B is a nice round number, approximately equal to the amount they would raise in the IPO, the amount they "extracted" during their corruption drive, and the amount of Softbank's total fund.)
The thing is Saudi Arabia has tried to diversify its economy many times before... it hasn't gotten it done. They have a huge gut of workers entering the workforce soon and it seems they are they're not educated enough to compete.
A nice man I met from SA noted that education in SA was still heavy on religion, and all his friends aspired to comfortable government jobs that are easy, and pay well, as that has been the place to be for decades.
I'm not sure you can fix that in say 20 years....
It will take generations for this mentality to change (if it ever can..) and by then the oil will have run out.
Granted I get why people do what they do, but as a whole, it could be disastrous. Much like your expat story, I recall a blog post by someone who went to SA for work. They enjoyed it, but they didn't get why they were even there doing the work as the people they reported to seemed to do little to nothing and could have ... just done their job, but at the same time they weren't sure those people could do that job, or much at all :(
He told me that for the exact same job if a Kuwaiti (or American (because liberators)) would be paid $100, another white guy would be paid $70, and as an Indian I could expect $30 or so. He told me I could negotiate a bit more because I have a PhD from US but not that much. This would still have been several times what I would make in India. I declined.
I can confirm this from a second-hand account as told by one of my best friends. He worked as a sub-contractor in Saudi Arabia for a couple of years for a big European air/defense firm and he told me that the technical education of his Saudi colleagues was sub-par, to put it mildly, mostly because they were still taught the Quran during engineering school.
Saudi Aramco needs neither of these.
Be very wary of investing in this IPO. The end of oil is coming - even Saudi Aramco knows it.
And shareholders would probably be more interested in the oldest reason to buy stocks: getting a share of the profits as dividends. If oil supply becomes insufficient before the Saudi reserves dry up, the prices will skyrocket and so will the profits.
Sure, it won't last 100 years, but if you are looking to get dividends within 20 years, that's not necessarily a bad deal.
In any case, building up a city in Yemen would not strengthen the Saudi state and MBS's personal political power in the way that a new and rich Saudi city would.
Such a project will require being careful about who gets there.
Maybe not at that massive valuation of 2T though.
Saudi aramco is doing an IPO to help fund their 2020 plan and to further diversify their economy and create ties with foreign economies.
This is one of the best deals available
I should clarify. He will try to make SA a source of innovation, investment and so on like the United States, Germany, Sweden, Norway, estonia, and other such countries -- robust, diverse economies that are driven primarily by the high levels of education and training observed by their populations.
Local population is lazy, and will remain lazy until they face poverty, which will be too late to maintain prosperity. The only solution that might work is to create some tax-haven for foreign companies with massive grants. Maybe.
Right now, his main focus is to make sure the Iran does not develop it's O&G infrastructure, that could challenge KSA's position. One part the the article does not explore, is "what did the US gave in exchange of the OPEP increasing their production?". Could it have something to do with the WH ending the Iran deal?
One part that is extremely true is that investing in the GCC is extremely risky, due to the way regulation can change within weeks. Most people that I know over there thinks that without a good, personal relationship to the royal family (or equivalent), having high stake investments is probably a mistake.
Also, i'm highly skeptical with the 20% marginal rate this article talks about. I remember reading that the cost of production of a barrel in KSA what about 3$.
If you want to be cynical, investors don't need true rule of law as long as the courts respond to their needs.
My gut tells me its more cargo-cult than anything concrete: MBS just wants to show everyone that the worlds most valuable corporation is Aramco; and wants to curry favor with the elite bankers (and everything that comes with those kinds of relationships) who would make a killing from the IPO.
There are other non-financial advantages of having at least partial public ownership of a publicly owned company like Aramco, like increased transparency and accountability.
In other words, gas prices don't have to rise, electric vehicle prices need to continue to fall. Which they will.
Incidentally, there is a charger near the gym I go to and I noticed that it does not display the price in advance. If regulators do not force electric car chargers to show prices like gas stations do, it tells me nobody is serious.
As for charger pricing, most chargers I see out in public are free. They don't display the price of gas in Venezuela at gas stations because it is too small to account for.
You are right that every dollar Saudi Arabia pulls out of Aramco is a dollar that someone else puts in. But hopefully these transactions are win-win by reducing Saudi Arabia's overall risk.
Plus, putting Aramco on the open market may lead to more accurate information about its worth, which would help Saudi Arabia plan better.
Banana republics are characterized by political instability. They also at least pretend to be democracies. Saudi Arabia is relatively stable and is an openly-absolute monarchy.
Further I’d argue that the ascension of MBS to the de facto head of state qualifies as evidence of instability. Also the very nature of a banana republic’s economy make the government unstable because people generally only grab their torches and pitchforks when they go from having food to not having food. If your economy stands on one leg then you’re one disruption away from not having an economy and therefore not having food.
[0] https://en.wikipedia.org/wiki/Banana_republic?wprov=sfti1
stay savvy hacker news!
and this: U.S. Court Says "No" to Aramco IPO? https://www.linkedin.com/pulse/us-court-says-saudi-aramco-ip...