Aramco in Moscow
Oct. 14, 2017
The last week elderly men with painted mustaches covering from head to foot in sheets paid official visit to Russian president.
What is going on here?
Nobody says anything clear. We can hear only some snatches: “cheap oil”, “S-400”, “a number of agreements of mutual interest.”
Between them verbal mixture on “strengthening and structuring relationships”.
With whom are they concreting agreement? In the most powerless state on the planet Earth there is only one interesting asset. Really Interesting, so for 50 years everyone has been dancing around it.
Of course we mean “Saudi Aramco” (or SA).
– The company brings to the treasury of the Saudis 9/10 state revenues;
– produces 10.2 million barrels per day (more than the US as a whole);
– has hydrocarbons reserves of 261 billion tons (10 times greater than the largest private oil company in the world – ExxonMobil);
– the cost of the entire giant estimates from $ 500 billion to $ 3.5 trillion.
I did not accidentally write “presumably.” SA is a complex asset: a private company of the state-forming family fund.
It is managed [in an] interesting way: all the reporting on the state of the company’s affairs are published personally by the members of the Royal Family. Who, how and when making key decisions – the greatest secret.
SA has an eloquent story, revealing a veil to everything that has been happening in the last 80 years in the Middle East.
In the 40s-50s, American oil magnats helped early starters, Saudis, to adjust the entire infrastructure, master the urban areas, including disinfection of water sources and diseases.
The sums with 8-9 zeros were invested in the pursuit of shares in the mega-corporation being built.
The first bell rang in 1973, when the family, in the context of protecting the management, recorded 25% of the key asset.
Complete nationalization took place in the 80s and the US remained, if slightly exaggerated: with “political influence” and “the ability to give advice directly to the head of the Royal Family.”
To date, SA is a state in the state.
On the balance sheet of the largest private-state company are the following: fleet of aircraft, a system of hospitals serving 360,000 people, a collection of football clubs, 4 funds with acquisitions in all countries of the world, 10 development companies, etc.
This monster has been thinking of IPO for 30 years. From the exact moment of nationalization.
If an IPO takes place, it can become the largest in the history. But to do so, Arabs need to open the cards.
After placing only 5% of the share capital of the company will freely apply on the exchanges.
Everything else will remain private.
We must keep in mind that SA is a key member of the Organization of Petroleum Exporting Countries (OPEC). The profit of Aramco and payments to its investors depend on the decision-making process in OPEC, which investors can not explicitly control.
The link with OPEC makes SA subject of the antitrust laws of the United States and the United Kingdom with the risk of criminal prosecution. Saudi company management could declare diplomatic immunity, with most of the responsibility would fall on Western (actually American) management.
In the middle of the year, the London Stock Exchange offered to help Aramco get exemption from the 25% free float requirement set in the listing rules.
And in July, the Office of Financial Regulation and Supervision of Great Britain (FCA) published an amusing document. It proposes to change the rules on which admission to trading on the UK stock market is made.
FCA proposed to create a new category of premium listing for companies controlled by states. Not surprisingly, this happened shortly after a joint delegation of the London Stock Exchange (LSE) and FCA visited Riyadh and presented the London stock market to SA and the Saudi Arabian oil minister.
The decision of the FCA implies the possibility of placing any state assets in London.
In particular, states can own business for historical reasons (for example, as a result of nationalization), and some of their responsibilities or the level of their involvement in the company’s activities can be determined by law.
De facto this:
– whitewashing manipulative schemes,
– the withdrawal of the whole sector from the zone of fire of the competing states.
It seems like the company is open, but acts like private.
There is a list of matching criteria.
This list shows that in addition to Aramco, most of the major state-controlled oil and mining companies (Petronas, National Oil Company of Abu Dhabi, PDVSA, CNPC, Kuwait Oil Company, National Iranian Oil Company, SOCAR, AEMFC, Office Cherifien des Phosphates, Codelco, etc.) can meet the criteria, as well as state-controlled conglomerates, for example, Rostek, Rusnano, Alrosa, LKAB and Fortnum.
You see how interesting it became.
The FCA proposal also has this spot: allow state-controlled applicants to conduct a listing through the mechanism of depositary receipts. It may be related to the experience of LSE in admitting large Russian companies through the mechanism of global depositary receipts (GDRs).
Thus, if the rules come into effect, state companies from Russia, China, Africa and the Middle East will be able to get to LSE.
SA is preparing for a slaughter.
The NYSE is also involved in negotiations with the Saudis, and now the question is whether they will be able to outdo this generous offer or they do not change laws for trillions as quickly as it is customary in London.