Saudi Aramco, Aramco, Saudi Arabia discussed on The Indicator from Planet Money
Saudi Arabia's state owned oil company. Saudi Aramco is legendary the company owns and runs Saudi. Arabia's oilfields Aramco is is also known to be an incredibly secretive company. It bankrolls the Saudi Royal Family and it's thousands of Princes Aramco makes up most of Saudi Arabia's entire economy so when Aramco announced that it was going to go public and start selling shares of stock people went crazy exchanges. All over the world. Were doing it out out for the IPO. The New York Stock Exchange exchanges in London China Japan. Everyone wanted to be the exchange that was selling Aramco. Stock Banks were also fighting it out for or a piece of the action. There was just so much money at stake. Rumors the company's value at two trillion dollars. Which would make the biggest company in the world wealthier than Apple Assan even Alibaba and this was set to be the biggest? IPO ever but going public means the public owns a chunk of your company usually usually around twenty percent and that comes with a bunch of regulations and transparency. You have to open your books and subject yourself to all kinds of scrutiny. Saudi Aramco Coke really didn't want to do that and it's been more than a year jumping from exchange to exchange trying to find someone who would bend the rules enough that proved to be difficult and and in fact last week. Saudi Arabia announced that the search was over. It was just going to sell the shares of Aramco itself on its own local Saudi exchange which seems like such a downshift township from the initial like Neg ambitions of the ARAMCO IPO. This is the indicator from planet. Money I'm Stacey Vanek Smith Today on the show the Aramco. IPO what happens. And what does it mean for Saudi Arabia this message comes from. NPR sponsor their state farm. Why do you need state farm renter's insurance because it helps protect stuff landlords? Don't like your furniture that gets drenched by a broken pipe. State farm arm Renter's insurance find an agent or get a quote at State Farm Dot Com. Today on the show we're talking with Samantha Gross. She's a fellow in foreign policy. At the Brookings Institution Samantha. Thank you for talking with us. My pleasure happy to talk to you. Do you remember when you first heard that the Saudi government was going to start selling shares shares of ARAMCO's stock. Absolutely I saw the interview that Mohammed bin Salman did with the Economist. My first thought was literally as your Daddy. Now that you're you're talking about this because this is a really selling Saudis family jewels and I was shocked that they would go so far as to consider this. Well I remember the thing that I was so captivated by was so in an initial public offering companies have to open their books their subject. All these reviews use the ideas your companies now owned by the public. You can raise a lot of money but the other side of that is you're subject to all these regulations and everybody gets to see under the curtain like everybody. Nobody gets to see all the things and so. I was all excited at the prospect of all this information coming out about Aramco but it seems like from the very first time I heard about witnesses expected sort of a normal. IPO things changed a little. Well it's been a real trade off the reason why Mohammed bin Salman wanted to do this. It's because he wanted to sell five percent of Aramco take it public in order to get money for his vision. Twenty thirty plan to revolutionize the Saudi economy and to make it less dependent dependent on oil and so that was a serious goal that he intended to bring in serious money for however the trade off is transparency that there's never been around Saudi Aramco. Hamco this is a difficult thing for them to think about. The rewards are great but also the risks and the challenges of that level of transparency are also great. I mean you know there. There is a real upside to an IPO going public. which is you raise a ton of money? There's a real downside. which is you are exposed as a company in a Lotta ways and it is like it almost seemed like they didn't want the downside including what you just mentioned which is that? They wanted to put five percent of the company public which is like a really tiny mountain normally. It's much higher than telling five percent of the world's largest companies still a ton of money. Yes but then. It doesn't mean five percent transparency in order to sell five percent of the company. You need to do just as much much transparency if you would if you're putting the whole thing up for an IPO. And so. I think they wanted sort of some transparency. But it doesn't work that ah you need complete transparency to to publicly offer any of the company right so in in the very beginning. I mean this was going to be the prettiest girl all at the dance for lack of a better metaphor and so it did seem like one by one. The major exchanges kind of backed away and then Saudi Arabia was talking to some kind of more obscure. The exchange is part of that was because the Saudis didn't want to meet some of the requirements that those exchanges had that they really couldn't bend. I mean those requirements are there to to protect investors and so then the Saudis sort of backed away and started looking at different exchanges at looking at private placements within institutional investors and in different ways to sort of float part of the company. Get money back without this full level of transparency. That was a lot for them. Yeah this was supposed to be the IPO of the century and then became sort of progressively ratcheted down to like more and more modest goals. Well Yeah and I think it ultimately fell apart heart just last weekend actually because they had a herd of bankers. I'm not sure what you call a hurt of bankers a number of bankers murder of crows or something exactly a flock of seagulls heard of bankers. Who was who were there advising them on the IPO in these bankers came in and said if a few place this he'll publicly in western countries? This is what we think it's worth. And they came up with numbers as low as one point one trillion. I'm some up to one point point five trillion but they weren't with the kingdom was looking for and so the kingdom was very frustrated and felt like well you know. Why should we sell this company to Western investors dress for less than we think it's worth? Why don't we place it locally on the Tato of a the Saudi exchange I'm and sell it to local investors and maybe we can get more money for it but even the local bankers wouldn't put a two trillion dollar valuation on Aramco Right? No they did not. They settled at about a one point. Six to one point seven trillion billion dollar value valuation. Why wouldn't they just say yes to two trillion like that? Seems I was shocked to read about that pushback. You know. They didn't feel like they could place it at that level revel in. It's an interesting when you think about what Saudi Aramco is worth. You have to look at a couple of different things. That oil is involved in sort political skirmishes in that part the world. We saw what Iran did recently in attacking the facilities there They demonstrated that those facilities are vulnerable. And that is important to evaluation evaluation of Saudi Aramco. Oh there's no question that they can make money and no question that their oil will continue to be valuable going forward but the question is what price they'll get for that oil so if we take climate change seriously if we see the demand for oil go down on that oils likely to sell at a lower price so they clearly have a proven track record into making money and they have a lot of inexpensive well but the question is how long can they make as much money as they have in the past and so now it seems like Aramco's Ramco in this weird position of going public for a lot less money than it wanted locally Saudi exchange and apparently kind of twisting people's arms to promised to buy the stock. They want to make sure that this public offering is fully subscribed. I've also heard tell of some pressure on sort of V very wealthy people little within the Kingdom to buy stock some of the same people that the kingdom rounded up a couple years ago. And I'm put them in the Ritz Carlton for a little wiles. Shakedown like Ritz is not nearly the kind of shakedown. That that was but I think some of them are being gently encouraged to buy around cuffs graphs. Just crazy because one point seven trillion dollars still make Saudi Aramco the most valuable company in the world. It is the most valuable company in the world. The I mean this the Saudi family jewels. And if you think about the pride enjoy of your country think the engine that makes your country move and you have a thought in your your head about what that is worth. It's very difficult to sell it. For Less Alright Samantha. Thank you thank you no problem. Today's episode of the indicator was produced by Jared Marquel L. fact checked by Nadia Lewis. Editor is Paddy Hirsch and the indicator is a production of NPR..