This comes as the company was named the world's most profitable enterprise. Aramco's net income was revealed to be more than that of Apple, Google and Exxon Mobil combined. Sputnik has discussed this issue with Professor Hafez Abdo from the Sheffield Business School at Sheffield Hallam University.
Sputnik: So, in your view, what explains the success of Aramco? Why has it managed to reach the top of the corporations in terms of income? And why has it taken them so long to really come to the bond market when it's had such phenomenal success?
Hafez Abdo: The company itself is a giant as you have explained earlier, and it fully controls the oil and gas reserves in Saudi Arabia, which is one of the largest [oil-producing] countries.
So, it's no wonder the company Aramco is the largest and most profitable in the world. Last year, we remember when the company was trying to go through with an initial public offering (IPO) and they were thinking [they would] sell 5 percent of the company's shares. However, it seems to me the company probably has changed its technique.
The company is trying to expand, instead of just being an exploration and production company; to be integrated, moving to acquire parts of SABIC, which is a government oil company as well. So why is this taking them so long? This is probably the way business is conducted in developing countries, and then the move itself – it is a strategy.
This is the first time the world has heard about the accounting figures of Aramco, which was surprising; it's shocking somehow, just to know how big the company is. So this is probably why the company did not take this step earlier. And this probably can justify the delay and the decision.
Sputnik: The decision to publish their income data. You mentioned it was shocking in many ways in terms of the value of this company. Is the decision then to release this income data and obviously to go to the bond market? Has it got an underlying decision? Is it aimed at any jurisdiction in the world or government or other competitive company in the oil and gas market? Is there an underlying rationale behind this, do you believe?
But, however, when going into the international market by IPO or through the bond market, the company must release its figures. We knew last year the company was trying to be listed in the London Stock Exchange.
They have to release their figures. This is one prediction. The other prediction probably is if the company still wants to go through with the IPO, it will enhance their share prices and it will enhance the opportunity for them to raise more funds in the future through an IPO.
So, by buying a bigger share in SABIC, that will enhance opportunity in front of them, while also releasing the actual figures – we believe that they were the actual figures for the company's balance sheet and profits.
These figures are the right ones, I would imagine it is mainly giving a strong signal to the market abouth the profitability and the financial position of this company.
Sputnik: For sure. I mean how attractive is the company for investors? We know the answer to that one. I suppose the interesting question is: how much could the negative of publicity surrounding the recent Saudi Arabia case with regard to the Khashoggi murder in Turkey, for instance, hinder the company’s IPO intentions?
Hafez Abdo: Well, it is two issues here. How attractive the investment in Aramco is, this is really a questionable question or prediction. The economic involvement or political involvement there is not stable at the moment, especially because of the tension between Saudi Arabia and Iran and this is what we see in the war in Yemen.
Plus what you mentioned about the incident with the journalist in Turkey. To me, that’s a completely political issue and it is being washed out now. So, not many people talk about it. The media have kind of forgotten about it. And it is not going to affect the economics of Aramco-SABIC or the bond markets of Saudi Arabia.
It has been used to press the country a bit down politically but nothing else. And it is just one incident. So, I don’t think there will be a big connection or immediate impact between that incident and the issuing of bonds or even an IPO in the future.
It is fully controlled by the Saudi government. The political tension between two large countries, Saudi Arabia and Iran, is not allowing probably-safe and stable investment.
However, there will be many investors, especially from the Arab Gulf countries, who will be interested in buying bonds or shares in Aramco because they know the environment. They know how profitable the two companies are, SABIC and Aramco. It is their economic environment, so they will. Also, it will attract some foreign direct investment.
Sputnik: Riyadh has been enjoying a long-term partnership with China. Now, what impact could this cooperation have on US-Saudi ties? I mean, the relationship between the United States and Saudi Arabia certainly in recent times has seen very interesting interactions, notwithstanding what you have said about the Khashoggi case. Ties that are becoming warmer between Saudi Arabia and Russia, and also what you were just saying, the relationship between Saudi Arabia and China is almost the Americans take a blind eye to it while with other countries, they are very insistent and robust that relationships between whatever countries and China and Russia are stumped out completely. It is an interesting question and an interesting sort of viewpoint on this one. What is your take on it?
Hafez Abdo: The relationship between Saudi Arabia and the United States is unbreakable, and we know this. The Americans are the ones who built Aramco. The Americans are the ones who actually supported the Saudi King in finding the oil wealth in Saudi Arabia.
We remember the story when the Saudi King came to the British Parliament and tried to talk to the MPs about his expectation of the Saudi oil wealth and the MPs at the time made fun of the King.
So, any country can have the right to establish links with other countries. The Americans sent some signals. The Saudis were very clever in sending some signals back: “if you want to press us down, we can move to China, the most giant economy of the world”. I think things have settled down between the two countries, Saudi Arabia and the United States. And the US has started to pay less attention and give less weight to the incident with the journalist.
And I see that the relationship between the two countries is back to normal now, and I believe it is unbreakable. There is a strategic relationship historically.
Especially, the Americans have always been against the Iranian regime and Saudi Arabia is against the Iranian regime, so both have the same enemy, if you like. This is another factor to unite that political vision of the two countries.
Views and opinions expressed in this article are those of Hafez Abdo and do not necessarily reflect those of Sputnik.
The views and opinions expressed in the article do not necessarily reflect those of Sputnik.