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

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.

Finance shake-up with Saudi derivatives market to launch in Q3

Updated 10 July 2020

Finance shake-up with Saudi derivatives market to launch in Q3

  • Launch of futures contracts to be made before the end of the third quarter of this year

RIYADH: Saudi Arabia’s Capital Market Authority (CMA) plans to launch a derivatives exchange in the latest move to modernize the Kingdom’s financial landscape.

An announcement about the launch of futures contracts will be made before the end of the third quarter of this year, Asharq Al-Awsat newspaper reported, citing CMA Chairman Mohammed El-Kuwaiz.

“We are in the phase of developing the derivatives market with intensive work on the options contracts and the futures contracts” he said.

He was speaking in an online discussion panel organized by the General Authority for Small and Medium Enterprises (Monshaat).

The markets chief said that the impact of the coronavirus on the market would be more visible in second quarter earnings and that the regulator was working on easing some of its procedures in response.

Tadawul is planning to launch additional derivative products gradually as part of its strategy to diversify its product offering and provide more investment opportunities for global investors.

Separately, Tadawul CEO Khalid Al-Hussan disclosed that the bourse has received a number of requests for new share offerings that are currently being reviewed. He said three companies had been approved to list on the parallel market known as “Nomu.”





A derivative is a financial instrument that acts as contract between two or more parties whose value is based on an agreed-upon underlying asset such as a stock or a bond.