IPO of the century to disappointment of the century? Saudi Arabia had to revise downward its ambitions for the arrival on the financial markets of Saudi Aramco, the Saudi oil giant. Riyadh announced Sunday, November 17, hope to raise about $ 25 billion in this financial transaction to begin next December on the Saudi Stock Exchange and allow Saudi Aramco to earn between $ 1.6 trillion and $ 1.7 trillion Stock Exchange.

This huge operation will allow Saudi Aramco to become, by far, the largest listed company in the world ahead of Apple (worth $ 205 billion in stock). But the new objectives are far removed from the ambitions initially announced by the Crown Prince Mohammed bin Salmane (MBS) in 2016. The de facto leader of Saudi Arabia expected to raise 100 billion dollars by proceeding to the IPO of the giant oil. He hoped that his nugget would reach a market valuation of $ 2 trillion. The company should have been listed in Saudi Arabia as well as in another international financial center (New York, London or Hong Kong). We are far from this vast program.

Ideal puzzle solution for MBS

The eventful history of this IPO is that of an operation, presented as the solution to all the financial problems of Saudi Arabia, which has become a real headache for MBS. Originally, the sale of 5% of Saudi Aramco's capital on the financial markets was to allow the crown prince to finance his vast plan to modernize the Saudi economy to make it less petro-dependent. The image of Epinal of a country that is drowning in petrodollars is, indeed, no longer so relevant. "The kingdom needs funding because it spends all the time. The budget deficit is between 5% and 6% and public debt reaches 30% of GDP, while it was non-existent in 2013, "says Garen Markarian, teacher at the WHU German Business School and Saudi Aramco specialist .

The plan seemed to run smoothly until the murder of journalist Jamal Khashoggi in October 2018. The incident sparked an international commotion against MBS on suspicion of having ordered the assassination. "Before, the crown prince was perceived, especially in the United States, as a modernist who could lend money. But with the changing image of the regime, institutional stock market players, such as major banks or US pension funds, had much more difficult to justify significant investments in Saudi Arabia, "said Garen Markarian.

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Riyadh's efforts to rekindle foreign investors' flurry for the Saudi Aramco IPO, including promising ever-increasing returns on investment, have all fizzled. Last week again, the armada of international banks and financial advisers hired by Saudi Arabia failed to convince potential investors to bet big on Saudi Aramco, tells the Financial Times.

Especially since 2016, another hot topic has taken more and more importance: global warming. Investments in fossil fuels are no longer in favor, which does not benefit Saudi Aramco, the largest oil exporter in the world. The awareness of the climate threat has also given a boost to the development of electric cars, less polluting ... and which do not depend on the black gold extracted in Saudi Arabia to roll.

In Saudi Arabia, for local investors

The attacks on oil installations on Saudi soil in September have further eroded the interest of foreign investment. These bombings gave the impression that Riyad was unable to properly protect the jewels of his oil crown. The October dispatch of additional US troops to Saudi Arabia to strengthen territorial protection reassured international opinion, but he also reminded the regime of his reliance on Washington for his security. Impossible in these circumstances for Mohammed bin Salman "to offer Russia or China significant investments in Saudi Aramco for fear of offending his American ally. However, there have been discussions in this direction, but they have not succeeded, "said Garen Markarian.

For foreign investors, the mass was said: Saudi Aramco was to resolve to a market valuation closer to $ 1.2 trillion. "It was unacceptable for Mohammed bin Salman who had extolled his $ 2 trillion goal. Such a downward revision of his ambitions would have been perceived as a major setback for the Crown Prince, "notes the expert from the German university.

Hence, in part, the Saudi decision to settle for an IPO on the Saudi financial center for local investors, rather than to score the company internationally. The power has more control over the amount of investments. "There is a patriotic movement around this operation with banks that promise advantageous rates for those who participate in the IPO," notes the Financial Times.

But, as a result, "instead of bringing fresh money from foreign investors into the country, this operation simply involves transferring funds from the Saudi private sector to the public sector [Saudi Aramco remains largely in the hands of State, Ed.] ", Garen Markarian analysis. In other words, MBS is funding part of its program to modernize the Saudi economy by taxpayers and not by foreign investors as he had hoped.

For Garn Markarian, this operation, to be worthy of success, should have been conducted more quickly: "Mohammed ben Salman took too much time to decide, and there was too much hesitation." This explains why the IPO has been caught up by lead events.