Saudi Arabia’s Aramco IPO falls short of expectations

Crown Prince Mohammed bin Salman: has he made Riyadh more repressive?
Aramco, Saudi Arabia’s state-owned oil giant, has finally made it to market. But the regime struggled mightily to get it there. 
The world’s biggest initial public offering (IPO) has finally reached the Saudi stock exchange, say Kate Kelly and Stanley Reed in The New York Times. The sale of 1.5% of Saudi Arabia’s state owned oil company, Saudi Aramco, early this week raised $25.6bn, eclipsing the $25bn raised by the Chinese online firm, Alibaba on the New York Stock Exchange in 2014 and making the entire company worth $1.7trn. The shares bounced by 10% on their first day, boosting the firm’s value to $1.9trn.

Context is everything
The Saudi regime might point to the money raised to claim that the flotation is a “triumph”, but “context is everything” says Nils Pratley in The Guardian. After all, the original plan “was to shoot for $2tn and sell 5% of the shares, rather than the 1.5% that have been dispatched”. The Saudis were also pinning their hopes on listing Aramco on a foreign stock exchange. Given that outside investors don’t own a “meaningful slug of the equity”, it’s fair to say that “the real IPO hasn’t happened yet”.
There are many reasons why the Aramco IPO has fallen short of expectations, says George Hay on Breakingviews. Firstly, the $2trn valuation was always optimistic given Aramco’s “myriad environmental, social and governance headaches”. The backlash after the brutal murder of journalist Jamal Khashoggi by agents of the Saudi crown meant that the idea of listing it abroad had to be scrapped. The “hubris” of the Saudi government’s decision to revive the IPO in the face of an Iranian drone strike on Aramco’s facilities also meant that “foreign investors largely held back”, forcing Aramco to reduce the portion of shares floated to 1.5%.
Despite the problems, the Saudi energy minister has predicted that it will hit a value of $2trn sooner rather than later – and he may be right, says Bloomberg’s Liam Denning. The kingdom is pulling out every stop to make sure that the price of oil is as high as possible, starting with a recent cut in oil production, in order to offset the impact of high US shale oil, which remains abundant. Meanwhile, Aramco’s inclusion in emerging market indices “will undoubtedly suck some passive money toward it”. Still, oil will have to go up to around $100 a barrel to justify a valuation at that level.
The longer-term implications of the deal for Saudi society are also unclear, says the Financial Times. The fact that “for all the doubts it is finally happening” has proved to some that “nothing is off-limits” in the era of Crown Prince Mohammed bin Salman. Still, even if the regime has carried out some gradual economic and social liberalisation, business is still “reeling” after the imprisonment of 300 princes and tycoons last year, while separate crackdowns targeting bloggers, female activists, journalists, clerics and academics have reinforced the belief that “Riyadh has become more repressive under Prince Mohammed”.

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