Saudi Aramco formally announced an IPO as part of the Crown Prince’s plan to reduce Saudi Arabia’s dependency on oil. How do the two correlate?
In: Economics
Right now, Saudi Arabia has a ton of theoretical future money, stored in the form of oil in the ground. Having an IPO is a way for them to turn that theoretical future money into current real money. They can then invest that money any way they want, whether that’s something like building factories or building a university and luring all the top minds in biotech research to Saudi Arabia with promises of high salaries and lots of grant money, which will then lead to people in the country producing valuable things that are not related to oil.
They can also follow Norway’s lead and simply invest that money in the market, using the proceeds to fund government programs in the future. Right now, if the oil price were to collapse, Saudi Arabia would lose a ton of their funding and be unable to pay for all the programs they promised. Norway, on the other hand, would largely be fine because the $1 trillion they have invested will probably not all collapse with oil prices.
His plan is to use the money that they get by selling a piece of Aramco to invest in non-oil parts of the Saudi economy.
The company will instantly have many many billions of dollars available to it for investment in alternative sources, without impacting the bottom line of the company.
Yes, it will then be a shareholder driven company and will be responsible to the board and the shareholders – but I suspect the Saudi royal family will obtain or maintain majority ownership, and with it the ability to squelch any uppity environmentalist shareholder efforts.
It doesn’t get SA to use less oil as much as it gets SA’s -economy- to be funded by “something else”.
And yes, current numbers indicate they’re selling **2%** of the company. Not only “not in control” share, but “we don’t even want to hear your opinion” share.
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