Breakingviews - Aramco’s next stop will be bond, not stock, market - Reuters

Breakingviews - Aramco’s next stop will be bond, not stock, market - Reuters:

Saudi Arabia’s Plan A for its crown jewel hasn’t gone to plan. The kingdom’s original goal of selling 5% of energy giant Saudi Aramco in an initial public offering to foreign investors at a $2 trillion valuation got downsized to a 1.5% offload to largely domestic punters at $1.7 trillion. That implies Saudi’s Public Investment Fund might only get about a quarter of the $100 billion it originally envisaged to help diversify the country away from oil.

With the stock rising 10% on its debut, the obvious next step would be to flog more of it. Aramco’s prospectus allows it to sell more to sovereign wealth funds before the lockup period expires in a year. But foreign investors largely rejected the current valuation. Depressed demand will meanwhile keep a lid on crude prices and hence Aramco’s valuation next year, despite oil producers further cutting supply.

Crown Prince Mohammed bin Salman has other options to finance his Vision 2030 plan, though. In 2016, the Public Investment Fund received 100 billion riyals ($27 billion) from a raiding of the Saudi Arabian Monetary Authority’s $500 billion of foreign-exchange reserves. If the monarch raised the same again, the authority would still have enough cash to protect the riyal’s peg to the dollar. Meanwhile cash from Aramco’s recent $69 billion acquisition of a majority stake in chemicals group SABIC should start to flow into the public coffers. Assume another $25 billion is made available to the Public Investment Fund.