#Saudi Aramco Global IPO Looks Unlikely Under New Shareek Plan - Bloomberg

Saudi Aramco Global IPO Looks Unlikely Under New Shareek Plan - Bloomberg

Saudi Aramco has been invited by Crown Prince Mohammed bin Salman to participate in a new initiative whereby it will invest tens of billions of dollars in the future of Saudi Arabia. To which one might respond: Doesn’t Aramco do that already?

It’s a fair question. The “Shareek,” or “partnership,” plan was announced in a late-night teleconference last week. Large companies, including Saudi Arabian Oil Co., are to invest 5 trillion riyals ($1.33 trillion) in the domestic economy over this decade, reducing the dividends paid to the government in order to do so. Bloomberg News reports Aramco and chemicals firm Saudi Basic Industries Corp. — majority-owned by Aramco after a recent acquisition — would contribute 60% of the investment.

Exactly how it will work is TBD; the company didn’t respond to a request for details. But one implication is that hopes for a splashy international listing of Aramco look dead.

Aramco’s IPO in December 2019 was the biggest ever but also confined to the small domestic market. This enabled Saudi Arabia to deliver on MBS’s objective of an optically high price but at the cost of mostly skipping international capital. The latter was less likely to overlook Aramco’s state ownership and would therefore have sought a discount. In the end, the IPO bore a resemblance to domestic taxation. Nonetheless, Aramco and the government took several notably investor-friendly steps. One was guaranteeing minority investors their share of an annual $75 billion dividend payment for five years (see this). Another was adjusting the royalties Aramco pays, boosting free cash flow while preserving the state’s overall take (see this).

The Shareek announcement runs counter to this in a number of ways. In the absence of further guidance, I am assuming the implied annual spending by a combined Aramco-SABIC of roughly $80 billion would include the $40 billion budgeted already for its oil and gas business. This would mean redirecting an extra $40 billion of cash flow that would otherwise flow as dividends to the government toward capital expenditure. 1 In one sense, who cares: Rather than dividend the money to the state, which then spends it, the spending happens under Aramco’s aegis instead. It’s all the same money.

And that would be the end of it if Aramco was still just a 100% state-owned company.