
Saudi Aramco’s $2T Zombie IPO - JumpCrisscross
https://www.bloomberg.com/news/articles/2018-07-07/saudi-aramco-s-2-trillion-zombie-ipo
======
olivermarks
The Aramco ipo is less urgent after MBS extracted well over 100 billion from
his tribal cohort [https://www.hindustantimes.com/world-news/saudi-arabia-
says-...](https://www.hindustantimes.com/world-news/saudi-arabia-says-it-has-
arranged-to-seize-over-100-billion-in-financial-settlements-in-corruption-
purge/story-VvVp2MxksGSqLXx1thXNdI.html)

~~~
azernik
Yup - OP mentions this, buried towards the middle of the article.

"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. "

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startupdiscuss
Just to underscore the argument that they want to diversify the economy, about
45B of SoftBank's massive fund is from SA's Public Investment Fund.

[https://techcrunch.com/2017/08/09/how-softbanks-100b-fund-
is...](https://techcrunch.com/2017/08/09/how-softbanks-100b-fund-is-in-a-
league-all-its-own/)

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.)

~~~
duxup
They have a lot of money, I just don't know if that is enough.

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....

~~~
MagnitudeFC
if you're a native Saudi citizen you pretty much are guaranteed a very cushy
govt job plus tons of perks (free education, interest free loans for building
a home etc). Many parts of the middle east work like this (relying on expats
to do all the real work).

It will take generations for this mentality to change (if it ever can..) and
by then the oil will have run out.

~~~
distant_hat
Yes, I once did a consulting project in Kuwait (considered one of the better
places in the region) and they wanted me to consider joining as an employee. I
talked to someone I knew in HR in another company over there regarding how
much could I angle for and whether it was a good idea.

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.

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acchow
IPO is meant to raise capital (for growth) and to provide liquidity to
existing shareholders.

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.

~~~
Iv
One shareholder (Prince Mohammad bin Salman) needs 500B to finance his project
of starting a city from scratch to compete with Dubai. (project Neom if you
want to google it). He also wants to feed some money in a tech investment fund
(solar energy and AI). That's the main reason behind the IPO IMO.

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.

~~~
itronitron
I would think, or at least hope, that 500B could buy peace in Yemen and that
he could pick a city there to refurbish from scratch.

~~~
azernik
Probably can't. Saudi military strength in Yemen is not limited by budget, so
doesn't help with a military solution. And the issues of control and religion
and security over which the war is being fought can't really be made to go
away with money, so wouldn't help too much with a political solution.

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.

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67_45
Overall I see this as a milestone in SA history. They are anticipating the
death of the oil market. Many people think it's unwisw to play games with what
is essentially their entire economy. But I guarantee if you knew what SB has
planned, you would find it hard to see any other path forward

~~~
AboutTheWhisles
So what do they have planned?

~~~
67_45
MBS is very smart and he has shown an appreciation for precedant in his
nudging forward of social reform. I guarantee that he plans to cement his name
in history by implementing another very large reform -- the transition of his
countries economy from soley oil to no oil at all (in time). His goal is to
create a kind of scandanavia of the middle East (economically, not
culturally). I know this because I know that he knows that oil is as good as
dead -- the transition to renewable energy is so far underway as to be
undeniable. The interests of all the biggest economies except Russia align
firmly with this transition. There is simply no future in oil and he knows it.
The only move that would be characteristic of MBS and the country as a whole
would be to rise to the challenge of this transition while maintaining the
prosperity and prestige that they currently enjoy. And all of the above leaves
little doubt about what they will try to do.

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.

~~~
saiya-jin
He will most probably fail, but somewhere in the middle so maybe still not a
bad move long term.

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.

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vhb
After speding a few years in the middle east, this is how things go over
there. Things only moves if it's senior management priority. Now that MBS has
found enough cash through his corruption probe, the IPO is not his main focus
anymore, and things wont go forward until he personally pushes for it.

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$.

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buzzdenver
How much is the offering discounted in the eyes of the investors because it is
not issued by a "normal" company, but a dictatorial state ?

~~~
supertrope
The article discusses how investors are leery of downward pressure on crude
oil prices and government fiat.

If you want to be cynical, investors don't need true rule of law as long as
the courts respond to their needs.

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hitekker
Without knowing much about the details: it seems misguided to put the entire
economy of a nation on the stock market.

~~~
vasco
Every developed country which supports itself by selling bonds to pay for its
expenses is effectively putting its economy "on the stock (bond) market"

~~~
zeusk
bonds have essentially a capped upside, and are pretty similar to debt which
is vastly different from equity.

~~~
nebolo
Bonds ARE debt.

~~~
zeusk
Bonds are a type of debt.

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pseingatl
There's this: Five Stop Signs along Saudi Aramco's IPO Road
[https://www.linkedin.com/pulse/five-stop-signs-along-
saudi-a...](https://www.linkedin.com/pulse/five-stop-signs-along-saudi-
aramcos-ipo-road-michael-okane/)

and this: U.S. Court Says "No" to Aramco IPO?
[https://www.linkedin.com/pulse/us-court-says-saudi-aramco-
ip...](https://www.linkedin.com/pulse/us-court-says-saudi-aramco-ipo-michael-
okane/)

