Saudi Crown Prince Mohammed bin Salman has signaled he will not be deterred in his quest for the largest IPO in history, unceremoniously sidelining the country’s energy minister over the weekend and putting trusted allies in his place.
Khalid al-Falih, who last week oversaw not only the Ministry of Energy and Industries but also Saudi Aramco, at first lost the state oil company and industry portfolios, and days later the ministry itself. He was not conferred a conciliatory advisory role.
Yasir al-Rumayyan, the man at the helm of Saudi Arabia’s Public Investment Fund, will now also head Saudi Aramco – the state oil giant whose partial privatization will benefit the fund.
The PIF, with investments ranging from the ride-hailing app Uber to the Saudi petrochemicals company Sabiq, is the vehicle by which Mohammed bin Salman hopes to fund his overhaul of the kingdom’s economy and diversify it away from crude.
Prince Abdulaziz bin Salman, an elder son of the king and half-brother of the crown prince, has been accorded the post of Minister of Energy, a first for a royal in the kingdom’s history.
Well-regarded as a veteran of the ministry and OPEC delegations past with deep knowledge of oil markets, he is seen as the ideal compromise candidate for the royal court – his professional reputation offsetting questions over obvious family ties.
The sudden shakeups, however, ultimately reflect the ambitions of the crown prince, who wants the IPO by early 2021.
For Karen Young of the American Enterprise Institute, the elevation of PIF chief Rumayyan and Prince Abdulaziz are “directly related to the twin goals of the IPO and capital raising for the expanded role of the PIF in national development projects.”
“The Saudi economy is now more state-controlled, consolidated in management than in its recent past,” she told Asia Times. The driver, she adds, is MBS.
John Sfakianakis, chief economist at the Gulf Research Center in Riyadh, says the appointment of Public Investment Fund chief Rumayyan to the top post at Aramco will strengthen the PIF’s control over the state oil giant in the run-up to its public offering.
“It facilitates communication within one institution, rather than going through Aramco. Obviously it gives them a stronger control over the activities of Aramco, the board, and more directly the IPO itself,” he said.
Sfakianakis says he does not believe the personnel changes will necessarily make the IPO go faster, but “the policy is to push ahead.”
The kingdom has shortlisted JPMorgan, Morgan Stanley and its own National Commercial Bank for lead roles, while Citi, Goldman Sachs, HSBC and Samba Financial may also be accorded managing roles, Reuters reported on Sunday.
Key questions remain, however, namely where Saudi Aramco would be listed and how it will be valued. The kingdom is reportedly pressuring its richest families to commit to serving as anchor investors ahead of the sale, Bloomberg said Monday.
While US President Donald Trump had publicly pushed for a New York Stock Exchange listing, an ongoing lawsuit launched by victims and first responders of 9/11 against the Saudi government creates a major potential liability there.
Brexit uncertainties in London and upheaval in Hong Kong have also warranted caution on the part of the Saudis, elevating the potential of previously under-explored venues like Tokyo for a listing.
Another key factor for the timing of an Aramco IPO – which the crown prince has said should be valued at more than US$2 trillion – will be the state of the oil market.
Raising the barrel
The task of ratcheting up the flagging price of oil, long wavering below $60 per barrel, has been publicly noted as an expectation for the incoming energy minister.
“One of the first tasks the new minister faces is what to do about the global oil glut,” read a Monday opinion column in the Arab News, a Riyadh-based newspaper closely aligned to the views of the royal court.
“OPEC oil ministers are this week meeting with their non-OPEC counterparts in Abu Dhabi to discuss why prices remain stubbornly low despite big output cuts by the OPEC+ group and supply reductions in Venezuela, Libya and Iran,” it continued.
The Saudi budget, Sfakianakis noted, demands a much higher price – closer to $80 per barrel.
But the sweet spot is more likely somewhere in between, a price that will not provoke the ire of President Trump while still allowing a higher valuation for Aramco and funding of Saudi domestic expenses.
“I think $60 okay, $65, but $70 probably not. Somewhere in the $60s is the sweet spot without getting too much attention,” said Sfakianakis.
In February this year, Trump tweeted his dissatisfaction as the price of Brent crude crept up toward the $68 mark.
Oil prices getting too high. OPEC, please relax and take it easy. World cannot take a price hike – fragile!
— Donald J. Trump (@realDonaldTrump) February 25, 2019
In the aftermath of the Tweet, prices tumbled 3%.
Such a rapid reaction may be a thing of the past, however, as Saudi Arabia pursues its key national goals.
“We are unlikely to see such effective oil price movement by presidential tweet again,” Young told Asia Times.
Saudi Energy Minister Abdulaziz on Monday signaled that the kingdom would stick to longstanding global production cuts agreed by OPEC+ and even left the door open for additional curbs.
“Cutting output will benefit all members of OPEC,” he told the Saudi broadcaster Al-Arabiya, noting that certain member nations, which have continued pumping beyond their quota, would be asked to fall into line.