Saudis Must Now Temper Expectations for Aramco's IPO - Bloomberg

Saudis Must Now Temper Expectations for Aramco's IPO - Bloomberg:

"The Saudi crown prince, Mohammed bin Salman, known as MBS, used oil as his initial springboard from relative obscurity. In his first on-the-record interview, in January 2016, he proposed the initial public offering of the oil giant Saudi Aramco. Also that year, he stamped his authority on the energy and industrial sector by appointing his loyal associate Khalid al-Falih as oil minister, with a broad portfolio. Now, as he pursues a remarkable purge of princes and other senior figures on corruption charges, oil is once again driving his vision.

Yet, the crackdown carries some risk: Even if the Aramco IPO goes ahead and investors look past the political upheaval, it will raise less than the hoped-for $100 billion and more like $65 billion. A plan to reduce oil dependence in the long-term has created a greater need for petrodollars in the short-term, even as Saudi Arabia becomes more hawkish about oil prices.

MBS is a man in a hurry. The war in Yemen, his plan to build a huge city of the future in the desert, the development of a nuclear power program, and investments in Uber, Softbank and other tech companies all require cash. At the same time, the crown prince has moved cautiously in cutting subsidies and salaries, reversing reforms when faced with public discontent. In conjunction with the domestic non-oil recession, this means that savings or new revenues at home will be limited. Until his ambitious modernization drive, Vision 2030, begins to show tangible progress, domestic private investment will slow, international businesses will be wary of entanglement with the wrong Saudi partner and capital flight will accelerate, as was the case after President Vladimir Putin’s purges in Russia.


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