Saudi Aramco may create employee shareholders says US think tank

A view shows Saudi Aramco's Manifa oilfield. The oil giant is planning an initial public offering which could be the biggest in history. (Reuters)
Updated 04 April 2018
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Saudi Aramco may create employee shareholders says US think tank

  • New Aramco charter outlines levels of protection for investors against state influence on the company
  • Aramco has around 55,000 employees, mostly Saudi citizens
DUBAI: Saudi Aramco could grant shares to employees in any forthcoming initial public offering, according to an analysis of the company charter it adopted at the beginning of the year.
The new charter also allows Aramco to issue different classes of shares, with the possibility of preferred stock paying higher dividends but with fewer voting rights, the analysis shows.
The revelations about the new corporate set-up at the Kingdom’s leading company, and the biggest oil exporter in the world, come in a paper for the Arabia Foundation, an American think-tank based in Washington DC, by Ellen Wald, non-resident scholar at the foundation and author of the forthcoming book “Saudi Inc.”
Wald and a team at the Foundation have translated and analyzed the charter document — previously available only in Arabic from Aramco — and highlighted what it means for the forthcoming IPO, which could be the biggest in history.
In addition to the provisions on employee and preferred shares, the analysis of the charter, adopted in January, highlights the fact that plans for the IPO are progressing and that Aramco plans to list shares on domestic and possibly foreign exchanges “in the near future.”
It spells out that Aramco’s future remains within the sectors of energy and petrochemicals, and will not become an arm of the Saudi government operating in wider industries.
It also outlines levels of protection for investors against state influence on the company, though concluding that “the state will have overwhelming influence on the board.”
An Aramco spokesman said he believed the analysis to be based on an accurate translation of the Arabic document. He added that there was no obligation on Aramco to publish an English version, though this might be available later.
The paper will add further fuel to the debate about the forthcoming IPO and its place within the Vision 2030 strategy to diversify the Saudi economy away from oil dependency.
Wald said: “Significantly, the charter provides insight into the future Aramco initial public offering and the ways it will benefit the Saudi economy and Saudi people during and after the state-led economic transformation. Although the charter does not directly inform on Aramco’s potential valuation, it raises important questions for future valuation.”
The implications for around 55,000 current Aramco employees — most of them Saudi citizens — will be significant.
“Providing Aramco stock to Saudi employees of Aramco could infuse the economy with cash from diffuse sources. This would decentralize wealth, increase commercialism (and private spending), raise real estate values, and perhaps encourage domestic investment in local small businesses. This infusion of wealth into private hands in Saudi Arabia, coupled with private and pension-plan purchases of Aramco stock, would mean that a large portion of Saudi Arabia would acquire a personal stake in the success and future of the largest company in the Kingdom,” Wald said.
“The opportunity for Saudis to own shares in Aramco would be an important contribution to the overall economic transformation of Saudi Arabia, which is currently a primary aim for the Saudi government. The government’s economic transformation plans are, in part, designed to incentivize the people to take a larger stake in their own economic futures,” she added.
The provisions on what kinds of shares can be offered in any further IPO could also have an effect on the eventual valuation of the company. “Although the charter only specifies one class of common stock, Aramco may offer a second class of preferred shares in the future. Preferred shares would limit voting rights but increase dividends, potentially indicating a higher valuation for Aramco while maintaining state control over the Aramco board,” Wald said.
The issuance of preferred shares would require a special shareholder meeting to approve the conversion of common shares.
“Preferred shares do not confer shareholder voting rights to the shareholders, but preferred shares do grant a higher share of the net profit of the company. In other words, preferred shares would offer a higher dividend, if the company creates them,” said Wald.
Higher dividend shares would affect the valuation of the company, which has also been a matter of debate. Some observers have suggested Aramco might struggle to make the $2 trillion estimate put on it when the IPO plans were announced two years ago.


Indonesia’s Go-Jek close to profits in all segments

Updated 18 August 2018
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Indonesia’s Go-Jek close to profits in all segments

  • Go-Jek is Indonesia's first billio-dollar startup
  • Ride haling app evolves into online payment platform

JAKARTA: Go-Jek, Indonesia’s first billion-dollar startup, is “extremely close” to achieving profitability in all its segments, except transportation, its founder and CEO Nadiem Makarim told Reuters.

Launched in 2011 in Jakarta, Go-Jek — a play on the local word for motorbike taxis — has evolved from a ride-hailing service to a one-stop app allowing clients in Southeast Asia’s largest economy to make online payments and order everything from food, groceries to massages.

“We’re seeing enormous online to offline traction for all of our businesses and are close to being profitable, outside of transportation,” said the 34-year old CEO.
The startup is expected to be fully profitable “probably” within the next few years, Makarim added.

Already a market leader in Indonesia, where it processes more than 100 million transactions for its 20-25 million monthly users, Go-Jek is now looking to expand in Southeast Asia.

Ride hailing services in Southeast Asia are expected to surge to $20.1 billion in gross merchandise value by 2025 from $5.1 billion in 2017, according to a Google-Temasek report.

Go-Jek said in May it would invest $500 million to enter Vietnam, Singapore, Thailand and the Philippines, after Uber struck a deal to sell its Southeast Asian operations to Grab — the bigger player in the region.

Go-Jek is seeing strong funding interest from its backers as it targets an aggressive expansion, Makarim said.

“Since its Aug. 1 launch, the app has already grabbed 15 percent of market share in Ho Chi Minh,” Makarim said. The firm this week opened recruitment for motorcycle drivers in Thailand.

The startup expects anti-monopoly concerns swirling around the Grab-Uber deal, which Singapore said had substantially hurt competition, to help clear a path for its expansion.

“We’re bringing back choice. The Singapore government is particularly eager to bring back competition,” Makarim said, adding that the order of overseas rollouts had not been set.

Go-Jek’s offshore push comes at a time when Singapore-based Grab is stepping up funding to expand in Indonesia and transform itself into a consumer technology company, starting with a partnership with online grocer HappyFresh.

“Mimicking Go-Jek’s strategy is the highest form of flattery,” laughed Makarim.

Grab told Reuters in a statement, “The super app strategy has been around for a while now and no Southeast Asian player can claim to have pioneered it.” The company also said Grab has not lost market share in Ho Chi Minh since August, but declined to provide market share data.

Makarim believes Go-Jek’s understanding of food merchants will give it an edge over Grab, which counts investors such as Chinese ride-hailing firm Didi Chuxing and Japan’s SoftBank Group Corp. among its backers.

Makarim, who sees food delivery as Go-Jek’s core business, said he was not concerned about funding, without giving details.

Go-Jek was reported in June as being in talks to raise $1.5 billion in a new funding round and was valued at about $5 billion in a prior fundraising, sources have told Reuters. The firm had said in March it was considering a domestic IPO.

Makarim noted Go-Jek’s backers were sharing both capital and expertise. The company is collaborating with Alphabet Inc’s Google on platform mobility, Tencent on payments strategy, JD.com on logistics operations, and Meituan Dianping on merchant transactions and deliveries.

Go-Jek has set up a venture capital arm, Go-Ventures, to invest in startups in Southeast Asia “with strategic importance to our business,” the CEO said.