25 February 2017, Khobar, Saudi Arabia/Dubai — Jamil Farsi, a prominent Saudi Arabian jewellery tycoon, made an impassioned plea to the investment minister at a meeting of the Jeddah Chamber of Commerce this month.
“I don’t know anything about economics but I beg you, and I beg the officials in the country, not to sell Aramco – not 5 percent, not 1 percent,” he said.
Investment minister Majed al-Qasabi replied the economy would benefit from the sale of shares in national oil giant Saudi Aramco. It is expected to be the world’s largest initial public offer, raising tens of billions of dollars.
But Farsi’s plea underlined misgivings among substantial parts of the public and the business community about the sale. Some fear Riyadh is relinquishing its crown jewels to foreigners cheaply at a time of low oil prices.
Those misgivings are not likely to block the IPO, which is a central part of a drive to make the economy more efficient and diversify it beyond oil exports. Since 2015, the government has shown it is willing and able to carry out contentious reforms, such as cuts to civil servants’ financial allowances.
But the public criticism, rare in a country where there is usually little open debate about government policies, could influence the way the IPO is structured. Up to 5 percent of the company is due to be sold next year, with listings in Riyadh and at least one foreign market.
The offer’s huge size means foreign investors will have to play a big role, but the government will be under pressure to demonstrate that Saudi citizens are benefiting most from it, bankers and analysts said.
That could mean reserving a large portion of the offer for individual Saudi investors and pricing it in a way that boosts the chance of them making money on their investment, perhaps by offering them some form of discount.
However, such a step could make it even more difficult to achieve a market valuation for Aramco close to the $2 trillion publicly estimated by Deputy Crown Prince Mohammed bin Salman, who heads the reform drive.
Some opponents of the IPO, and some bankers and analysts think $2 trillion is too optimistic.
Last year Foreign Reports, a Washington-based oil industry consultancy, estimated that Aramco could have a market value of $250-460 billion, excluding the value of refining assets and guaranteed access to oil and gas.
“There is a real concern among Saudis with regard to the Aramco IPO,” Mohammad Sabban, a former adviser to ex-oil minister Ali al-Naimi, told Reuters.
One area of concern is whether Saudi citizens will be allocated most of the issued shares; another is whether foreigners will gain any control over Aramco’s operations through this and any subsequent share offers, he said.
An Aramco spokesman said: “Saudi Aramco does not comment on rumours or speculation.”
Recently, supporters and opponents of the IPO have sent tweets with the hashtags in Arabic “#The people are against selling Aramco” and “#We definitely want Aramco’s IPO”.
Some tweets say Saudis should support any measure the government sees as right. Others compare the IPO to Egypt’s sale of the Suez Canal to British colonialists or Palestinians’ loss of their land.
“There is some opposition to the IPO on the grounds of economic nationalism. The company is viewed as if it were the goose that laid the golden egg,” said Jim Krane, an energy fellow at Rice University in Texas.
“Some Saudi citizens seem to fear they won’t benefit, that there is nothing in it for them.”
Krane said the IPO had also become a lightning rod for resentment of tough austerity policies which Prince Mohammed has imposed since 2015 to repair state finances in an era of cheap oil. “Now some people who oppose these cuts are starting to oppose the Saudi Aramco IPO.”
Other prominent Saudis, while acknowledging the need for austerity, argue it isn’t necessary to sell shares in Aramco. Othman al-Khowaiter, a former Aramco vice-president, told Reuters a sale could prove uneconomic as oil prices looked set to rise in coming years.
“It isn’t logical to sell any percentage of our main source of revenue under the pretext that we need more income. And we know that the current income from oil exceeds our basic needs.”
The IPO has plenty of supporters. Sadad al-Husseini, a former senior Aramco executive and now an energy consultant, said much opposition to the deal was based on misunderstanding its logic.
“The intent is for the IPO to raise large sums of capital that are critical for financing the diversification of the kingdom’s future economy.”
But while Husseini said he was confident the IPO would go ahead, he added that economic and political considerations meant how fast and in what form remained to be seen.
A Saudi banker said that to avoid public criticism it was getting short-changed, the government would need to achieve a valuation for Aramco not far from $2 trillion.
That could require big policy adjustments – for example, a sharp cut in the tax which Aramco pays, although that could reduce the government’s recurring income.
If something close to $2 trillion doesn’t look likely to be achieved, the IPO could conceivably have to be delayed, said the banker who declined to be named as he was not authorised to speak publicly.
*Reem Shamseddine & Andrew Torchia; Marwa Rashad in Riyadh; Editing: Pravin Char – Reuters.