05:00 GMT +328 September 2016
Live
Khaled al Otaiby, an official of the Saudi oil company Aramco watches progress at a rig at the al-Howta oil field.

Riyadh's Monster Oil Company May Issue Shares for First Time

© AP Photo/ JOHN MOORE
Middle East
Get short URL
143161151

In the latest sign of Saudi Arabia’s attempt to grapple with stagnating oil prices, the nation’s largest, state-owned oil company may soon go public.

For decades, Saudi Aramco has maintained control of the kingdom’s oil supply. The state-owned behemoth – in fact, the largest energy company in the world –is worth an estimated "trillions of dollars," according to officials speaking to the Economist.

It is, unequivocally, the principle source of the Gulf nation’s wealth.

But according to the Economist, Saudi Arabia’s deputy crown prince, Muhammad bin Salman, has indicated that the government may sell off shares in Aramco for the first time in the company’s existence.

While the decision is far from final, Prince Salman says he has held two high-profile meetings recently to discuss the matter and that they are already floating the idea by potential investors. He added that he is "enthusiastic" about the idea.

Riyadh has no intention of surrendering control of the company, and would only begin by selling around 5%. That percentage could increase over time, though not by much, according to officials.

The timing of the decision is hard to ignore, given Riyadh’s well-documented financial troubles as it continues to conduct an aggressive bombing campaign in Yemen. While Prince Muhammad told the Economist that the decision is meant to help the country’s recently-burgeoning stock market and increase transparency to help stamp out any potential corruption, the true answer could be much simpler: a cash-strapped Riyadh needs the money.

While 5% may not sound like much, the sheer size of Aramco means that even a small public offering could bring in a sizeable sum. As Business Insider points out, "Five percent of, say, $1.5 trillion is still $75 billion."

This also follows a recent pattern of Riyadh’s penny-pinching. Last month, the kingdom unveiled a new budget which shows substantial cuts to welfare programs. It also plans to raise taxes, as well as domestic prices on gasoline, kerosene, water, and electricity.

Saudi Arabia also needs to find funding without raising oil prices in foreign markets. As international sanctions are gradually lifted from Iran following last year’s nuclear accord, Riyadh is desperate to keep oil-dependent Tehran from becoming a regional rival.

But global oil prices may be beyond the kingdom’s control, anyway. Whether Riyadh likes it or not, Iran will soon be competing, forcing more crude into an already bloated market, and likely drive down oil prices even further.

Taking Aramco public may be a relatively safe way to earn some quick cash, but offering shares doesn’t necessarily mean that buyers will be interested. The company’s lack of transparency could be a major cause of concern for foreign investors.

As the Economist points out, Aramco does not report revenues. It owns a fleet of jets and a string of football stadiums, items that may not be entirely on the books. The oil company also operates a number of other non-oil development projects on behalf of the Saudi government, including a large hospital system. These complications could be unappealing for investors.

Still, with no sign of the Saudi-led campaign in Yemen dwindling, Riyadh may be out of options.

Related:
Saudi-Led Coalition Denies Hitting Iranian Embassy in Sanaa
'Domino Effect': Iran’s Revolutionary Guard Warns of Saudi Collapse
Tags:
falling oil prices, oil prices, Saudi Aramco, OPEC, Muhammad bin Salman, Iran, Saudi Arabia, Yemen
Community standardsDiscussion
Comment via FacebookComment via Sputnik
  • Сomment

All comments

  • Normpich
    The Saudi's and its Allies are striving for Cash to pay for their Terrorist Groups and pay for all the War Machines of Human Killers they have on order with the US and EU. These Kingdoms are on the verge of collapse in all sense of the word, and are also one of the main causes the Disastrous results of the US/EU Stockmarket, which are being drained with massive selling of Stocks, principally in the Defense and Financial Sectors. More Chaos to come in the near future.
  • jas
    I think it may be a protective move. If the Saudi family is ever removed from power, there's a possibility to maintain control via stock ownership, offshore accounts and shell companies. Or they could use the stock as collateral for derivatives and such. There are a lot more advantages to stock than just raising raw cash. Could even have something to do with possible exile in London or US.
  • Normpich
    Once ARAMCO goes public and have to expose their true financial Face & History there will be many Past & Present Heads of States heads rolling. The Corruption from within must be appalling!
  • Normpich
    Once ARAMCO goes public and have to expose their true financial Face & History there will be many Past & Present Heads of States heads rolling. The Corruption from within must be appalling!
  • Ivan Buckeye
    Offering stock in the piggy bank isn't a good sign for the Sauds. Whatever the reasoning, this obviously is an indication.
  • Elsa JV
    Those able to buy may not be willing to buy what the Saudis are selling -- or may want bargains and not pay full price. . .

    This is the beginning of the end of the House of Saudi, all earthly kingdoms -- empires -- come to an end. Just look at the Romans, Greeks, British, Japanese, Ottoman, and others before them.

    Not only the Saudis but also the Americans are in danger, if they do not get their house in order and stop their meddling in the world to influence affairs to their liking.

    The Saudis reign with a brutal hand and digging a hole for those they oppose but they might find themselves in that hole before long.

    So you sow, so shall you reap! All of us pay, some more dearly than others; some pay little, and others, everything they have -- Divine Retribution!
  • Ayelyah
    shares in ISIS
  • Dave
    In reality going public is an exit strategy or at least lowering stakes where the future becomes uncertain. It's okay they had decades for accumulating profits. Looks like beginning of the end of brutal Saudi dynasty.
  • Athanasios
    If a company raises capital through issuing shares, it is a sign of weakness. If the company is strong, it opts for debt, unless it has enough money from its own operations. I guess no one would lend the country.
  • Athanasios
    Remember the old, Seven Sisters? Aramco is part of what the Financial Times has called the "New Seven Sisters", namely, Saudi Aramco (Saudi Arabia), China National Petroleum Corporation (China), Gazprom (Russia), National Iranian Oil Company (Iran), Petrobras (Brazil), PDVSA (Venezuela), Petronas (Malaysia). The troubles of Aramco are not so bad news for the other oil companies.
Show new comments (0)