Year in review: How Aramco defied the odds

Year in review: How Aramco defied the odds
The official ceremony, above, launching Saudi Aramco’s initial public offering in the Saudi capital Riyadh in December. (AFP)
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Updated 31 December 2019

Year in review: How Aramco defied the odds

Year in review: How Aramco defied the odds
  • Aramco overcame sceptical West, geopolitical risks and climate concerns to pull off the world’s biggest share sale
  • IPO has given KSA international capital market status and the confidence to play a global role in the financial world

DUBAI: On Dec. 11, Yasir Al-Rumayyan and Amin Nasser — chairman and chief executive respectively of Saudi Aramco — rang the opening bell at the Tadawul stock exchange in Riyadh in a shower of ticker-tape, and the Kingdom’s business and economic scene was changed forever.

Al-Rumayyan, who had pushed through the initial public offering (IPO) of shares in the face of some opposition from Western financial advisers, spoke of a “proud and historic moment” as he described the event as a “milestone” on the Vision 2030 path to the Saudi economy’s diversification away from oil dependency.

Others thought the IPO’s true significance was even more profound. Ali Shihabi, well-known commentator on Saudi affairs, said the offering was a “monumental development” as part of the “cultural shock therapy” under way in the Kingdom, under the guidance of a new generation of reformist policymakers led by Crown Prince Mohammed bin Salman.

The IPO has instantly given Saudi Aramco the status of the world’s most valuable company, made the Kingdom’s ambitious sovereign wealth fund, the Public Investment Fund, richer by roughly $30 billion, and catapulted Tadawul into the top flight of global stock exchanges.

But, perhaps more significant, it is also the first stage in a process that could see further sales of Aramco shares, with a listing on a foreign stock exchange a distinct possibility in the near future.

On top of the hugely oversubscribed $12 billion bond Aramco issued earlier in the year, the IPO has given Saudi Arabia a certain cachet in the international capital markets and the self-confidence to play a global role in the financial world.

It is also likely to accelerate the Kingdom’s eastward tilt, away from the big financial centers of New York and London and towards the growing Asian hubs, such as Tokyo and Hong Kong.

One executive for an Asian finance house in the Middle East, who did not wish to be named, said: “Some people say floating a small percentage will make no difference, but that misses the point. Aramco has signed up to Tadawul’s standards of transparency and accountability, and no other national oil company has to obey stock market rules like that.”

The opening ceremony was the culmination of a process that began in late 2016, when the crown prince stunned the world with the news that he was considering a stock market flotation for the biggest oil exporter in the world.




A Saudi Aramco oil processing facility in the Eastern Province. The company’s IPO is likely to accelerate the Kingdom’s eastward tilt, away from the big financial centers of New York and London and towards the growing Asian hubs, such as Tokyo and Hong Kong. (Getty Images)

Back then, it was suggested around 5 percent of Aramco might be sold, that the company could be valued at $2 trillion, and that the IPO would happen pretty quickly.

Those plans evolved and adapted to changing circumstance. Last year, at the World Economic Forum annual meeting in Davos, Nasser told Arab News that the biggest single reason for the delay in the IPO was the desire to strengthen Aramco’s position in the booming downstream petrochemicals sector with the acquisition of SABIC.

That deal went through early last year, removing the last strategic obstacle to the IPO.

The valuation had been a matter of debate ever since the IPO plans were first announced.

Seasoned observers of the financial markets agree that there is nothing unusual about a difference of opinion between the vendor (the government of Saudi Arabia in this case) and potential buyers (the international investment community).

Both are looking to maximize their return on the deal.

With a company as big and strategically significant as Aramco, other factors inevitably came into play during the complex negotiations between the government and its advisers.

The oil price — inevitably a big element in determining Aramco profitability and therefore valuation — was under pressure throughout the IPO planning stage as American shale flooded global markets.

As a leading member of OPEC, the Kingdom took action, in partnership with Russia and other non-OPEC oil producers, to stabilize the price.

FASTFACT

6x - Consulting firm Thunder Said Energy found Saudi Aramco to be six times more efficient than ExxonMobil and Chevron in both current emissions and targets for future reduction as a proportion of its gas production.

Then, just as details were being finalized for the publication of the IPO prospectus — the crucial document on which the valuation is assessed — the risks of doing business in the Middle East were thrown into stark relief with the Iranian attacks on Aramco facilities at Abqaiq and Khurais.

With “geopolitical risk” on top of analysts’ minds, another negative had been thrown into the valuation process, despite Aramco’s rapid recovery from the attacks, which had the potential to dramatically alter the IPO arithmetic in turbulent global energy markets.

The whole pricing process was also conducted against the backdrop of a changing investors attitude to “Big Oil” companies as the debate intensified about the best way to tackle climate change.

Despite being the biggest exporter of fossil fuel in the world, Aramco has strong credentials in the environment lobby, with low levels of pollutants from its production and refining processes and a high level of investment in new, anti-polluting technology.

Another factor cited as a headwind when the shares were being priced was Western reaction to the murder of journalist Jamal Khashoggi the previous year, though this had not prevented investors in New York and London from subscribing to the Aramco bond a few months earlier.

By mid-November, when the final decision on pricing had to be taken, there was a huge range in the valuations as assessed by the small army of international and regional financial institutions advising on the IPO.

At a fractious meeting in Riyadh, one banker was reported as saying “there is real tension in the banking syndicate.”

Al-Rumayyan cut through the dissent with a simple formula: The IPO would not be marketed in Western financial centers like London and New York, and would instead focus on Saudi and regional investors.

The Westerners had been the leading advocates of a lower valuation, and Aramco advisers explained that there was little sense in marketing to them when they had been dragging their feet on the valuation.

In any case, ample provision had been made for foreign investors to take up shares in the IPO via the Tadawul.

That logic turned out to be amply justified. At a compromise valuation of around $1.7 trillion, there was more than enough demand in the region when the share sale was finally launched.

The offer was nearly five times oversubscribed in total, implying that more than $100 billion of demand was chasing only $26 billion worth of shares.

Among Saudi investors, there was big demand for the flagship offering. Some 5 million citizens and expat residents bought shares in the offering to become equity partners in the company that has been at the heart of the Kingdom’s prosperity for more than 80 years.

They can look forward to a healthy dividend stream as well as bonus shares if they hold on to their stake for a minimum of six months.

So far, they have had no reason to regret their decision to invest in the world’s most profitable company.

In contrast to many big IPOs in 2019 — like ride-hailing firms Uber and Lyft, not to mention the aborted flotation of WeWork — Aramco shares surged on opening, and soon hit the $2 trillion valuation, allowing the Kingdom to tick another box of the IPO check-list.




Drone attacks in September sparked fires at two Saudi Aramco oil facilities in Abqaiq but they recovered quickly from the attacks. (AFP)

It has since fallen back, but is still above the issue price. Investment bank adviser Goldman Sachs has shares in reserve to smooth out price fluctuations.

With the dividend already set in stone, there are two main, interconnected factors that will determine the share price going forward — Aramco’s underlying level of profitability, and the price of oil on international energy markets.

“If oil prices stay consistently in the $70-$80 range, there will be greater interest in global oil stocks generally,” said the executive of the Middle East-based Asian finance house.

But the OPEC+ limits on production could also affect Aramco profits for the current year, he warned.

“Overseas skepticism about the valuation has not disappeared,” the financier added, implying that the mainly Western banks that tried to talk down the IPO price would not buy shares at current prices.

But in that case, Aramco has another trick up its sleeve. There are plans under discussion to list the shares on an Asian stock market, with Tokyo edging ahead of Hong Kong as the preferred venue. Asian investors are likely to appreciate Aramco’s robust dividend, and are equally keen to ensure strong trading ties with their main supplier of crude oil.

The logic is for Aramco to look further eastwards, away from the skeptical West. “Asia has been Aramco’s primary growth market since the 1990s, when Ali Al-Naimi (former Aramco president and Saudi energy minister) identified it as the largest center for future oil demand,” Ellen Wald, American energy consultant and author of the book Saudi Inc, told Arab News.

“When people notice a so-called ‘move to Asia,’ they are just noticing a decades-old plan.”


Arabic calligraphy’s fusion with Japanese captures beauty of both worlds

Arabic calligraphy’s fusion with Japanese captures beauty of both worlds
Noha Raheem says when she was younger, she discovered the three famous Japanese written scripts — including Kanji, Katakana and Hiragana — and she was awestruck. (Supplied)
Updated 52 min ago

Arabic calligraphy’s fusion with Japanese captures beauty of both worlds

Arabic calligraphy’s fusion with Japanese captures beauty of both worlds
  • My enthusiasm for Kanji script started six years ago, says Saudi designer and calligrapher Noha Raheem

JEDDAH: Saudi artist, designer and calligrapher Noha Raheem ventured into the world of calligraphy in an unconventional way, fusing her interest in Kanji — the logographic Chinese characters used in the Japanese writing system — with Arabic calligraphy.

The result has been a portfolio of unique and eye-catching works that capture the beauty of both worlds
“I’m fond of Arabic calligraphy and graphics in general. My enthusiasm for Kanji script started six years ago,” Raheem told Arab News.
“Any calligraphic font has its roles and system. When I was younger, I discovered the three famous Japanese written scripts — including Kanji, Katakana and Hiragana — and I was awestruck. The impressive vertical letters, the way they are formed and their meaningful symbols were like a secret code.”

FASTFACT

In Arabic calligraphy, writing proceeds from right to left and forms a horizontal line. Artists rarely confine themselves to convention, though.

In Arabic calligraphy, writing proceeds from right to left and forms a horizontal line. Artists rarely confine themselves to convention, though.
“For Kufic calligraphy and freestyle in Arabic, I was driven by passion. I was inspired by Hajji Noor Deen in my beginnings, and later on, I created Arabic calligraphy in the Kanji style to show the beauty and flexibility of this complex yet innovative mix,” Raheem said.


The self-taught calligrapher discovered the roles and philosophy behind the beauty of Kanji script. “It is said that the only rule for Japanese and Chinese calligraphy is that it is beautiful, no matter what is written. What matters is how it is written. That’s why I believe the Kanji style can be merged and fitted with our Arabic letters to create a masterpiece for both eye and mind,” she said.
She explained that Arabic letters are equally malleable. “They can be shaped in any way, and still keep their form and meaning. Today I wrote my letters in the Kanji style. Later, I might do it in Urdu just to show the world how flexible and beautiful Arabic letters are.”
Raheem’s artworks, including famous sayings and poetry in Arabic, are written freestyle — a tricky task.


She also writes Qur’anic verses in Kanji: “I love to write words that anyone can relate to, including poetry and short verses with iconic and universal messages. I can apply this art to any word, as long as it makes sense to me.”
Raheem is faithful to the cultures she draws inspiration from, using traditional Sumi ink and off-white, antique-style background colors with black script, or vice versa, to mirror the essence of the Japanese style.
She also uses Japanese calligraphy brushes, Xuan rice paper, and Kakejiku, a Japanese hanging scroll used to display and exhibit paintings and calligraphic inscriptions and designs.
Her love for and dedication to Japanese art drove her to share her knowledge and display her works at art cafes, galleries, and sushi restaurants in Saudi Arabia and Dubai.
She encourages other Arab artists to explore the beauty and flexibility of the Arabic language and preserve it through art. Raheem can be found at her Instagram account @noha_raheem.


Daily virus tally hits 10-month high in Saudi Arabia

Daily virus tally hits 10-month high in Saudi Arabia
Health authorities urged the public to continue to follow all precautionary measures. (SPA)
Updated 23 June 2021

Daily virus tally hits 10-month high in Saudi Arabia

Daily virus tally hits 10-month high in Saudi Arabia
  • Authorities urge compliance with health guidelines

RIYADH: Saudi Arabia on Tuesday recorded the highest single-day total of new COVID-19 cases since Aug. 13, 2020.
Authorities in the Kingdom reported an additional 1,479 infections, bringing the total number of confirmed cases to 476,882. Of these, 11,131 remain active and 1,487 patients are in critical condition.
The Health Ministry also said there have been a further 12 virus-related deaths, raising the death toll in the country to 7,703.
Makkah region has the highest number of new infections, with 431, followed by the Eastern Province with 280 and Riyadh region with 256.
The ministry said that an additional 920 patients have recovered from COVID-19, bringing the total number of recoveries in the Kingdom to 458,048. It added that about 16.8 million doses of coronavirus vaccine have been administered, an average of 94,104 a day, which is a rate of 48.2 doses per hundred people.
Health authorities urged the public to continue to follow all precautionary measures and ministry guidelines to prevent the spread of the virus. All ministries and other government bodies in the Kingdom are working together to ensure compliance with health guidelines.

HIGHLIGHTS

• Saudi Arabia reported 1,479 new cases on Tuesday.

• The Makkah region reported the highest number of infections.

• With 12 new fatalities, the death toll has risen to 7,703.

The Ministry of Human Resources and Social Development carried out 448,126 inspections of commercial establishments in the private sector throughout the country in the first five months of this year. The aim is to ensure employers are following all rules and regulations relating to pandemic-related health protocols and to Saudization legislation. The teams recorded 45,421 violations and issued 51,005 warnings.
The ministry called on employers to adhere to its decisions and legislation relating to the labor market, improve the working environment and implement localization rules, as well as precautionary measures to prevent the spread of COVID-19. Unannounced inspections of the private sector institutions will continue throughout the Kingdom, it added


Saudi education portal among global top 4, says UNESCO official

Saudi education portal among global top 4, says UNESCO official
Saudi Education Minister Dr. Hamad bin Mohammed Al-Asheikh held a meeting with UNESCO’s top official Stefania Giannini in Italy on Tuesday. (SPA)
Updated 23 June 2021

Saudi education portal among global top 4, says UNESCO official

Saudi education portal among global top 4, says UNESCO official
  • The UNESCO official said the Kingdom’s success in introducing distance learning in a short time has propelled it into a leadership role in this field

RIYADH: UNESCO’s assistant director general for education on Tuesday lauded Saudi Arabia for promptly switching over to online learning methods in the wake of the coronavirus disease (COVID-19) pandemic.
During a meeting with Saudi Education Minister Dr. Hamad bin Mohammed Al-Asheikh on the sidelines of the G20 education ministers’ meeting in Catania in Italy, Stefania Giannini said the Kingdom has achieved great success in e-learning and distance education during the pandemic.
She praised the swiftness of the Saudi authorities in switching over to online learning without compromising on the quality of education.
The UNESCO official said the Kingdom’s success in introducing distance learning in a short time has propelled it into a leadership role in this field. Giannini said the Madarasti online learning platform introduced by the Kingdom is among the top four global models.

FASTFACT

The Madarasti platform provides students with virtual classes, homework assignments, and delivery tools and is used in conjunction with the iEN YouTube channel and the iEN national education portal.

The fully interactive platform was developed as a response to the coronavirus pandemic, which shut down schools across the Kingdom. It is designed so that students can log in and attend their lessons digitally, interact with their teachers and track their progress.
It provides students with virtual classes, homework assignments, and delivery tools and is used in conjunction with the iEN YouTube channel and the iEN national education portal.
School leaders consistently monitor the educational process via Madrasati, prepare class schedules, communicate with absent students, and provide technical support for students and their parents.


Summer vacations: Insurance providers step up to cover travel risks

Summer vacations: Insurance providers step up to cover travel risks
Saudis will not be allowed to enter airports or board aircraft without showing their health status through the Tawakkalna app. (AN photos by Huda Bashatah)
Updated 23 June 2021

Summer vacations: Insurance providers step up to cover travel risks

Summer vacations: Insurance providers step up to cover travel risks
  • Countries are demanding travelers have travel insurance in order to lift the financial burden of medical bills in case of emergencies
  • ‘A traveler is exposed to losses such as quarantine and treatment costs of COVID-19, cancellation of a flight or shortening its duration or missing flights, or loss of luggage or delay of luggage. The policy includes coverage of emergency medical expenses

RIYADH: With summer vacations underway and more countries easing restrictions on international travelers, health risks from COVID-19 remain a source of concern.
Citizens are being encouraged to follow health precautions before departure to ensure a safe trip, while health insurance is also an entry requirement for some countries.
Pre-flight tests are required and more countries are demanding travelers to their countries have travel insurance in order to lift the financial burden of medical bills in case of emergencies. Others require visitors to buy healthcare policies from their destination’s government.
For travelers under 18, health insurance that covers COVID-19 infection is mandatory. The 12 accredited health insurance service providers are following the guidelines.
In a joint press conference with the Saudi General Authority of Civil Aviation last month, Council of Cooperative Health Insurance (CCHI) spokesman Othman Al-Qasabi said that a new insurance policy in conjunction with the Saudi Central Bank (SAMA) will include benefits that cover the risks of COVID-19 infection.
The policy is mandatory for those under 18 planning to travel.
Talal Albotty, regional director of the Central Region at Salama Insurance Co, told Arab News that the central bank initiative in collaboration with the CCHI aims to distribute risks and losses if these occur.
Comprehensive coverage is included for travelers on international flights against all risks related to travel outside Saudi Arabia, he said.
“A traveler is exposed to losses such as quarantine and treatment costs of COVID-19, cancellation of a flight or shortening its duration or missing flights, or loss of luggage or delay of luggage. The policy includes coverage of emergency medical expenses, personal accidents, or transportation of a deceased from or to Saudi Arabia and liability toward others as per the conditions and exceptions delineated in the unified insurance policy,” he said.
Albotty said the cost of an insurance policy does not exceed SR375 ($100) a month. However, if more services are added, these will be calculated proportionately as per the duration of the policy.
The policy is for people vaccinated against COVID-19 and is required for anyone under 18 traveling outside Saudi Arabia since they are not required to take a vaccine under global protocols, he said.
Husain Quhal, a senior executive with a leading insurance company, told Arab News: “The Saudi Central Bank has launched a campaign to educate people on the importance of travel insurance covering COVID-19 risks as well as reducing costs of traveling abroad.”
Feroz Khan, vice president of sales in Saudi Arabia and Bahrain for Webbeds, a leading accommodation supplier to the travel industry, told Arab News: “Resumption of flights in May, opening of borders, and relaxation in travel and quarantine protocols have all resulted in positive travel sentiments.”
Webbeds is in touch with its partner company in the Kingdom and will make this travel insurance available for travel agents to book online shortly, he said.
Saudis travelers will not be allowed to enter airports or board aircraft without showing their health status through the government-approved health app, Tawakkalna.
Travelers who have received two vaccine doses, those who have completed two weeks since receiving the first jab, those who are immune by recovery no more than six months since infection and children under the age of 18 who have travel insurance obtained in cooperation with the Saudi Central Bank will be the only groups allowed to cross international borders.


Who’s Who: Dr. Suzan Mohammed Al-Yahya, director general of Saudi Arabia’s Royal Institute of Traditional Arts

Who’s Who: Dr. Suzan Mohammed Al-Yahya, director general of Saudi Arabia’s Royal Institute of Traditional Arts
Updated 22 June 2021

Who’s Who: Dr. Suzan Mohammed Al-Yahya, director general of Saudi Arabia’s Royal Institute of Traditional Arts

Who’s Who: Dr. Suzan Mohammed Al-Yahya, director general of Saudi Arabia’s Royal Institute of Traditional Arts

Dr. Suzan Mohammed Al-Yahya has been appointed director general of Saudi Arabia’s Royal Institute of Traditional Arts.

Al-Yahya will be responsible for managing the institute, implementing its strategic directions and developing traditional arts in line with the institute’s vision.

She is one of the top academics in the field of art and design, having worked as a faculty member at Princess Nourah Bint Abdul Rahman University.

She also worked as a consultant, and was a member of advisory committees at the university and other organizations.

Al-Yahya obtained a master’s degree in art education and a Ph.D. in educational technology, as well as a Ph.D. in educational policies and leadership at the University of Northern Colorado, US.

She has authored research papers in various fields and participated in several scientific conferences.

The institute will launch its first training courses in September aimed at enriching traditional arts, training specialized national cadres, raising the level of public awareness, and preserving tangible and intangible cultural heritage.

The Royal Institute of Traditional Arts is one the initiatives of the Quality of Life Program, part of the Kingdom’s Vision 2030 reform plan.

The Ministry of Culture aims to develop the local cultural sector through education and knowledge. The institute will provide advanced educational programs to prepare young Saudis to help the Kingdom develop its cultural sector along modern lines.