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Saudi Arabia pulls off biggest IPO in history — but is bigger really better?

Phil Flynn

Is bigger better?

The launch of the much-awaited Saudi IPO is going to be the biggest ever. But is it going to be better? According to the Wall Street Journal, Saudi Aramco, the state-owned oil company, will price its initial public offering at the high end of the targeted range to give the oil giant a total value of $1.7 trillion in what would be the world’s biggest-ever IPO.

It makes the company bigger than BP, Royal Dutch Shell, Chevron and even Exxon Mobil.

The public offering has been the linchpin of Crown Prince Mohammed bin Salman's so-called “Vision 2030” plan that they say is a bold plan to diversify the country's dependence on oil.

Yet despite beating the record of the $25 billion IPO in 2014 of Chinese Alibaba Group Holding Ltd., the road for Saudi Aramco to get to this point has been a story of murder and coercion and world outrage.

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Aramco has declined to comment on the IPO pricing.

Originally the idea of a Saudi Aramco IPO had the investment world, including top U.S. firms, salivating to get a bite of the world's most profitable oil company. The state-owned Saudi Aramco in the public markets was a dream come true, and global stock exchanges were getting ready to fight to list this massive company.

As reported by FOX Business' Charlie Gasparino last month, some of the biggest banking and political players attended the Future Investment Initiative in Riyadh in October. United States Treasury Secretary Steven Mnuchin, BlackRock Inc. CEO Larry Fink, Goldman Sachs Group investment banking partner (and former White House aide) Dina Powell, Moelis & Company Vice Chairman Eric Cantor, himself a former GOP House majority leader, and World Bank President David Malpass, according to people with knowledge of the matter.

Yet the outlook for Saudi Aramco became a lot murkier. The first issue was the true ownership of the company. You had to realize that despite the sheer size of the company, the investors are only going to be in the minority as the Saudi government is still going to be the majority owner. At the same time, the Saudi government is not exactly known for its transparency.

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Many of the investors also lost their appetite for doing business with the Saudi government after the assassination of Jamal Khashoggi, a Saudi dissident, a journalist for The Washington Post and former general manager and editor-in-chief of Al-Arab News Channel, in 2018 at the Saudi consulate in Istanbul. That murder that many believe the Crown Prince ordered turned off many investors.

In fact, after the murder, it was reported that many Saudi princes were strong-armed or at the very least, strongly encouraged to use using their own money to invest in the deal. Those Saudi princes were, in many cases, the same princes that got an all-expenses-paid shakedown at the Saudi Ritz Carlton back in 2018. That 5-star luxury shakedown included Saudi billionaire and investor Alwaleed bin Talal, one of the most visible Saudi princes before Crown Prince Muhammed put him on a months-long vacation.

So is it any wonder the Saudi Crown Prince did not even come close to getting the 2 trillion-dollar valuation that he wanted?

Foreign Investors made it clear that it was too expensive based on the risk. Many asset managers thought it was overpriced and wonder if the Saudi government will have their interests at heart. The Saudis will have the power to make all the decisions on investment production, company leaders and bosses, and investors are too small to have any voice.

China failed to come in as big as expected, and individual foreign investors decided to take a wait-and-see attitude. Not only do you have to worry about the Saudi government, but you also have to be concerned about the price of oil. Can Saudi Araba still control the price as it did before?

You have record production in the U.S.; you have concerns that global demand may peak. But more than anything, you have to be partners with a government that is very hard to trust. Just because Saudi Aramco is bigger it isn’t necessarily better.

Phil Flynn is senior energy analyst at The PRICE Futures Group and a Fox Business Network contributor. He is one of the world's leading market analysts, providing individual investors, professional traders, and institutions with up-to-the-minute investment and risk management insight into global petroleum, gasoline, and energy markets. His precise and timely forecasts have come to be in great demand by industry and media worldwide and his impressive career goes back almost three decades, gaining attention with his market calls and energetic personality as writer of The Energy Report. You can contact Phil by phone at (888) 264-5665 or by email at pflynn@pricegroup.com.

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