The grand sale

Aramco has announced the world’s biggest stock flotation but it falls short of meeting Saudi Arabia’s ambitious goals

The Saudi Aramco, an oil-producing behemoth, has announced the world’s biggest stock flotation. The move fits into Crown Prince Mohammed Bin Salman’s ultimate scheme to diversify the economy and make it less oil-addicted before the 2030 mark. But it falls short of meeting Saudi Arabia’s ambitious goals, possibly because the timing for the selloff might not be right and perhaps even due to the overestimated value. Having said that, the money generated by going public with Aramco, the country’s most prized and profitable jewel, may not contribute enough in the grand scheme to fund Prince Mo plan.

While local retail participation is expected because there is a sense of national pride in oil-giant, the timing of the Aramco selloff has several hurdles and may not attract foreign investors in the future.  Firstly, it clashes with global trends against the use of fossil fuel and the surge in concern for the environment.  Top institutional investors like Temasek Holdings Private Limited, a Singapore- based sovereign wealth fund, plan to reduce their exposure to fossil fuels, potentially ruling them out as backers of Aramco.

Secondly, confidence in the kingdom received a severe blow following the killing of journalist Jamal Khashoggi. Foreign investors, who are expected to be invited, might be reluctant to invest in the country where human rights record is less than enviable. Lastly, both Saudi Arabia and the executives at Aramco are likely to be dogged by questions about the drone attacks that virtually crippled the global oil supply in September.  While the physical damage from the attacks may have been repaired, investors remain worried about the vulnerability of Aramco and its units to future assault, more so, given the political tensions between Saudi Arabia and Yemen that show no sign of closure – not at least in the near future.

Published in The Express Tribune, November 4^th, 2019.

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