Aramco’s IPO! A worry for ‘The West’?

The world’s biggest company just went public!

Saudi Aramco, the oil company that accounts for more than 10% for the world’s oil output was listed on the Riyadh Stock Exchange on 17th November. This Initial Public Offering (IPO), projected to be the world’s largest-ever, aimed to raise as much as $100 Billion by the sale of
stocks. If the company raises even a quarter of that amount it’ll bring in the biggest IPO in history, surpassing the listing of the Chinese giant Alibaba on the New York stock exchange. While the numbers certainly look good on paper, the world hasn’t shown the intrigue the KSA
expected. The overall response from the West has been somewhat cold. Despite entreaties by the government, western investors have not shown much interest in the oil giant’s market debut.
The only major country expected to invest heavily in China, who is looking to commit as much as $10 Billion indirectly through state-owned enterprises. This move may be linked to Beijing’s ambitious Belt and Road Program, which aims to counter the rising oil prices via this investment.

Aramco produces oil more efficiently than any other oil company in the world, generating profits more than Apple, Microsoft and Amazon combined. It is the most profitable company ever, but there is still some skepticism attached to this middle eastern giant. This IPO has different imperatives, the proceeds of the offering will go towards the Saudi State transformation program and not the company itself, thus hampering the financial gains that the investor expects. The principle goal of public companies is to maximize values for shareholders, but this national oil company, the piggybank for the kingdom has different goals. If Western investors still buy equity in Aramco, regional foes could lead disruptions in the firm’s oil production. The middle east is in a troubled state, Aramco was, in fact, very recently attacked by Yemini rebels. The middle east has many such geopolitical issues that may pose a future threat to the growth of the company.

Despite these risks, investors will have little say in the company’s decision-making, because the kingdom will retain the vast majority of voting shares. That means management can privilege the priorities of the state over the priorities of Aramco’s shareholders, thus providing little incentive to the shareholders.

One more problem for the US is the extreme intrigue that China is projecting, observers fear that the Chinese may use their stocks in Aramco to strengthen ties with Saudis at the expense of the US.

The discussions surrounding Aramco’s listing underscore broader tension in the integration of “state capitalists” economies, such as China and Saudi Arabia, into the global economy. A strengthened Aramco could exacerbate problems and embolden authoritarian governments to foist their own state-owned companies onto overcapitalized Western investors. The IPO might prove to be a boom for the Saudis, but it certainly won’t be much appreciated by the West.

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