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MBS’s Aramco market surprise holds many straws

Saudi Arabia’s crown jewel Saudi Aramco, the world’s largest oil company, is again going to make headlines soon.

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In a surprise statement by Saudi Crown Prince Mohammed bin Salman during an interview at the Future Investment Initiative (FII), also called the “Davos in the Desert”, the latter stated that future share sales of Aramco will be announced in the coming years. MBS, as he is known, again surprises the market, not only by announcing a future additional share sale but also the moment of his statement is remarkable.

While global stock exchanges are reeling with share prices falling, showing a long list of red flags and numbers, the Saudi crown prince again hits the market with a potential multi-billion share sale adventure. At present, global analysts are still trying to find the real reasons behind the new Saudi adventure, as oil and gas futures are not looking very bright.

However, the appetite to be involved in the global oil market’s giant is clearly again going to build. The unexpected success of the Aramco IPO in 2019, making a staggering $25.6 billion during the IPO, but selling up to $29.4 billion in shares, has still made a huge impact.

MBS’s remarks are a surprise, but news already had been given to the market before about this option. In an interview by the head of Saudi Arabia’s sovereign wealth fund, the Public Investment Fund (PIF), and the owner of Aramco, the latter already had stated that the company may consider selling more shares if market conditions are right.

At present, Aramco shares are still valued at around 34.75 riyals ($9.26), which is still way above its IPO price of 32 riyals. The total value of the company is currently set at $1.86 trillion.

The market should be looking at several factors before hitting on the news of this share deal. Aramco’s overall position within the PIF’s and MBS’s economic diversification plans is clear. Without the global oil, gas, and petrochemical Moloch as one of the main pillars of Saudi economic future, no plans can and will be implemented.

At present, Saudi Arabia’s economy is still a rentier-state, in which oil and gas revenues are the main pillars. Diversification efforts are underway to build a new 21st Century proof resilient and sustainable economy, providing employment for Saudis while supporting the survival of the Kingdom as it is.

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The immense amount of investments needed however is still the main stumble block, even that the Saudi PIF is putting billions of dollars into the economy, investing not only in high-profile Giga Projects, such as NEOM, Red Sea Islands, or Qiddiya, but also increasingly targeting start-ups and SME’s in- and outside of Kingdom to provide the necessary push for growth. Ambitions are there, as shown by the PIF strategic presentations last week, indicating a doubling of total assets and investments the next years.

To put this in place, the call on Aramco’s revenues however is growing. Even that the Saudi government is able to introduce one government bond issue after the other, as global financial markets are cheap and liquid, Riyadh’s budget deficits are still high. Aramco, as one of the only real moneymakers in the country, has a dual purpose at present.

To be the main financial backer of the Kingdom’s diversification plans, but also to provide the necessary influx of cash to plug the holes in the budget.

Aramco’s overall cash position is still very rosy, especially when looking at the situation of most of its competitors. Profits are still staggering, not at all like IOCs such as Shell, BP, Exxon, or Total.

Still, Aramco’s headquarters is not surrounded by money-trees, as its debt levels have increased also to unexpected levels. New debt issuances of Aramco could not only be threatening its future cash flow situation, and that of the government, but also the success of MBS’ dream Vision 2030.

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A much cheaper and attractive option is to put new shares in the market, as there is no real risk to the owner of the company, PIF. By pushing another 5-10% of shares to the market, Aramco could not only reap a possible $180 billion (at current market value) but also go where it last time didn’t go, Western financial markets and exchanges.

Spreading risk, looking at current post-COVID scenarios and new political hotshots in Washington, London, and Europe could be a very interesting option for all. Even with a Biden Administration, Johnson UK, and Merkel 2.0 in Germany, Saudi money and politics still will talk the talk to all. 

Oilprice / Balkantimes.press

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