Western media and Aramco: A tale of two IPOs
Are there two initial public offerings (IPOs) of Saudi Aramco out there? Is the Western media covering the same one as me? Maybe there is another record-breaking share sale, with the same name, that I have missed. Because I certainly do not recognize my Saudi Aramco IPO in the relentlessly doom-laden and cynical coverage I see every day from the big global business news brands.
According to this narrative, the cash-strapped Kingdom has been struggling for nearly four years to get the IPO away in the face of a hopelessly unrealistic valuation. It needs that $2 trillion market tag, you see, because Saudi Arabia is running out of money as the oil price faces inexorable long-term decline, and the Kingdom has to cash in at the highest price possible.
It was said too that savvy Western bankers and financiers had warned Saudi Arabia that it was going to be difficult to sell the IPO at that price, and were met by a stubborn wall of resistance. The Kingdom would settle for nothing less than $2 trillion, the story went.
In the parallel world of the other — real — Aramco IPO, virtually every factual element of the above narrative is at least arguable, and some simply incorrect. Saudi Arabia does not need the money from the IPO because it has vast financial reserves. From the Kingdom’s standpoint, the IPO was more a symbolic than a financial enterprise.
I certainly do not recognize my Saudi Aramco IPO in the relentlessly doom-laden and cynical coverage I see every day from the big global business news brands.
It was the flagship project of the Vision 2030 strategy, a “shock and awe” demonstration for the rest of Saudi business that would kick-start the private sector and energize entrepreneurs in the Kingdom.
As events showed with the eventual valuation, Saudi Arabia was prepared to be realistic about the $2 trillion figure, to the extent that it has lowered it to around $1.7 trillion. Western media portrayed this as a “climb down” or “U-turn,” but really the Kingdom was onto a lose-lose here. If it stuck to $2 trillion, it was greedy and unrealistic. If it lowered the valuation, it was a surrender. Line up negative headline either way.
The other big development that got the Western media excited was the decision not to market the IPO outside Saudi Arabia and other Gulf financial centers. The outrage that followed was explicable insofar as it reflected the pain that would be suffered in lost fees for investment bankers and financiers in London and New York, who are the sources for many of the knocking stories.
But to suggest, as some eminent commentators did, that it represented a rejection of foreign investors by the Kingdom is simply wrong. Most serious foreign investors can still access the IPO via the Saudi Stock Exchange (Tadawul).From a Saudi viewpoint, it simply made no sense to make all the time, effort and expense of foreign roadshows when Aramco advisers’ analysis showed ample demand for IPO shares at the $25.6 billion valuation from Saudi, regional and other investors. Simply, there was no pressing need for Western money.That does not mean the end of foreign involvement in the offering. I would be very surprised if there is not the disclosure of a strategic foreign investor before the IPO process ends. And there is nothing to stop Aramco selling more shares — after the lock-up period ends in six months — to investors and trade partners in Asia, Russia and elsewhere. There is also the option of a listing on a foreign exchange at some stage in the future, with Tokyo still very much in the frame as a favored venue.
So around two years from now, it is likely that Aramco will have a listing on Tadawul with a world record-setting IPO and a share register of committed citizen-investors, anchors in the shape of a big trading partner or two, and a foreign listing on one of the biggest stock exchanges in the world. That ticks all the boxes from when the IPO was first suggested in 2016.
What will be the narrative from the supercilious Western business media by then? I guarantee they will tell us that they knew how it would turn out all along.
• Frank Kane is an award-winning business journalist based in Dubai.