It actually seems pretty savvy. If you are 100% consolidated in a single commodity it makes sense to diversify. Who knows what the actual numbers look like and if institutional investors can get confortable, but the article seems to indicate that they would raise 100b which means they are selling like 5%. So it doesnt sound like they are giving up control anytime soon.
You're totally missing the point of my comment. I'm not a native english speaker so perhaps I didn't get my point across quite clearly - Bonds/Debt are a totally different thing compared to equity (IPO).
Banana republics are characterized by political instability. They also at least pretend to be democracies. Saudi Arabia is relatively stable and is an openly-absolute monarchy.
I was always under the impression that banana republic simply meant that economy was a one business type deal and generally controlled by state plutocrats and oligarchs. So I did a quick look up on Wikipedia[0], perhaps the phrase has different connotations in our local dialects of English but Wiki didn’t make any mention of presumed democracy.
Further I’d argue that the ascension of MBS to the de facto head of state qualifies as evidence of instability. Also the very nature of a banana republic’s economy make the government unstable because people generally only grab their torches and pitchforks when they go from having food to not having food. If your economy stands on one leg then you’re one disruption away from not having an economy and therefore not having food.
Seriously. I mean... Aramco was originally subsidiaries of American petrochemical companies which was "bought" by the Saudi Royal family effectively nationalizing it. This doesn't make any sense at all...
How does floating their state business on the stock market diversify their economy? If anything, dollars that might have been invested in non-oil industries will instead purchase aramco stock. The national economy will be only more dependent on oil.
Right now Saudi Arabia owns an uncertain stream of future profits from Aramco. By selling stock, they are converting a small portion of that uncertain stream of future profits into a bigger pool of money upfront that can be diversified away from oil. For example, they can invest those dollars into SoftBank's giant funds, which are investing in ridesharing companies like Uber, Lyft, Didi, Cruise Automation, etc.
You are right that every dollar Saudi Arabia pulls out of Aramco is a dollar that someone else puts in. But hopefully these transactions are win-win by reducing Saudi Arabia's overall risk.
Plus, putting Aramco on the open market may lead to more accurate information about its worth, which would help Saudi Arabia plan better.
Sure, that would be a one time cash bonus raised from the IPO. Couldn't they instead just funnel the cash earned from Aramco to fund whatever they have in mind?
My gut tells me its more cargo-cult than anything concrete: MBS just wants to show everyone that the worlds most valuable corporation is Aramco; and wants to curry favor with the elite bankers (and everything that comes with those kinds of relationships) who would make a killing from the IPO.
There is literally no difference. The value of Aramco is the discounted value of all future cash flows. So selling 5% in an IPO is equivalent to selling 5% of all future cash flows (discounted appropriately). This allows them to diversify now rather than later/gradually.
There are other non-financial advantages of having at least partial public ownership of a publicly owned company like Aramco, like increased transparency and accountability.
There is actually a critical difference depending on your oil market projections, which is why they're diversifying now rather than later. A very optimistic projection would be that Saudi can gradually extract & sell most of their oil before the clock runs out. If that doesn't happen, they could lose a large amount of value as global energy markets change dramatically over the next 30-50 years. Half of the US oil consumption is gasoline (9.3 million barrels per day oil equivalent, nearly equal to Saudi's output), and that's almost entirely going away with the switch to electric vehicles in the coming decades. China - the world's other giant oil & gasoline consumer - will similarly move almost exclusively to electric vehicles, as will the rest of the developed world. If you're a petro state, you don't want to be sitting on 100 years worth of oil and betting on extracting annual payouts from it over that time (comparable to what they can get for it now).
Having a cheaper electric alternative to a gas auto with similar or better performance will quickly make gas vehicles seemingly "unaffordable". Very few Americans will stick with a combustion engine if it is the more expensive alternative.
In other words, gas prices don't have to rise, electric vehicle prices need to continue to fall. Which they will.
I could drive much less (I drive below average miles anyway though) and I could get a much more fuel efficient car. I'm not going to get a house with a car charger, so it's unlikely I will get a rechargeable car, let alone one that is fully electric. My apartment complex has one charger for hundreds of units.
Incidentally, there is a charger near the gym I go to and I noticed that it does not display the price in advance. If regulators do not force electric car chargers to show prices like gas stations do, it tells me nobody is serious.
If electrics get down to the price range that apartment dwellers are buying them, you can be sure that the number of chargers will increase dramatically.
As for charger pricing, most chargers I see out in public are free. They don't display the price of gas in Venezuela at gas stations because it is too small to account for.
