Saudi Arabia May Move Even Closer into Jewish Financial Orbit

Introduction by John I. Johnson: Some interesting insight into the economics of Saudi Arabia is provided by a Jewish business journalist writing in the New York Times. The desert kingdom is contemplating an initial public offering for Aramco, the huge state-owned oil company originally founded by US firms, including Standard Oil of California, in 1932-1933. Aramco is so big relative to the Saudi Arabian economy that if it goes public in its home country its shares would dominate the entire Saudi Arabian stock market. So it may have to list in the US instead.

From the NYT:

The initial public offering of Saudi Arabia’s state oil company could value the company at trillions of dollars, but the real eye-opener may be where the Saudi government chooses to list the shares, Steven Davidoff Solomon writes in Deal Professor.

It would be revolutionary to list anywhere except its home country exchange and it matters because this is arguably the I.P.O. of an entire country.

The company generated an estimated $180 billion in profit per year to the state, which represented over 40 percent of its economy before the recent slump in oil prices. About 90 percent of the government’s budget comes from oil profits.

If Aramco lists only on the Saudi exchange, it will swamp the current market capitalization of the exchange, which is about $300 billion to $400 billion. This would make foreign shareholders uneasy as it would dominate trading and could set its own rules on disclosure and other regulation.

But there have been indications that the listing will be in New York, Hong Kong and London.

Aramco would be subjecting itself to the full array of United States securities laws, but it would allow American investors in, bringing the company and the country into the full financial sphere.

Subjecting Aramco to United States financial reporting would be a shock to the Saudi system — as if the entire country were to be suddenly regulated by outside capital markets. It would be a difficult task – audited financial statements would have to be prepared, which could take years. Aramco would have to decide which assets to keep and which would remain private. It would also have to adopt a board, possibly with outside members, and trim the company down.

Because of this, an I.P.O. is unlikely to happen soon, Mr. Davidoff Solomon writes. Saudi Arabia is still a closed government and is likely to remain so for some time, but an Aramco I.P.O. could be a victory for New York.

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Source: New York Times and National Vanguard correspondents