The public listing of Saudi Aramco, possibly the largest IPO in history, looked very good on paper. After decades of reliance on a single, volatile commodity, Saudi Arabia would raise hundreds of billions of dollars to modernize its economy, while using the opportunity to improve its stature on the world stage.
With at least a half a dozen nations vying for the company to list on their exchanges, the plan appeared at first to be working. But now Mohammed Bin Salman, the 31-year-old Crown Prince of Saudi Arabia, must walk the frayed tightrope of Middle East politics while seeking to woo competing global superpowers. At the same time, his country continues to fight a brutal, expensive war in Yemen as a global glut in oil reduces the value of his nation's economic crown jewel.
While the country is still expected to list 5% of the company some time in 2018, recent estimates have pushed the listing to the latter half of the year, and complications could postpone it further. Saudi Aramco CEO Amin Nasser reportedly said at the World Petroleum Congress in Istanbul on Monday the IPO could take place in the second half of 2018.
The lesson: There is no easy way to take a company worth possibly $2 trillion public, especially not for Saudi Arabia.
The drop in oil prices in particular could threaten the listing, with some experts saying a rebalancing of the commodity to near $60 a barrel would be necessary for the kingdom to move forward. The price of benchmark Brent crude hasn't hit $60 a barrel since July 2015, and has been on a downward slide since February.
That could mean that the partial privatization of the state-owned behemoth, designed to barricade the nation's economy from the fluctuation in oil prices, may be doomed by that same fluctuation.
"They're kind of hoisted on their own petard here," Wilson Center Middle East specialist David Ottaway told TheStreet.
Florence Eid-Oakden, the CEO and chief economist for the research and strategy firm Arabia Monitor, said an IPO wouldn't make sense given current oil pricing. The price of oil will have to be "optimal," Eid-Oakden said, suggesting a price-per-barrel of around $60.
The problems facing the possible listing extend beyond economics, however. Decisions of whether and where to list the oil giant hang on intricate regional rivalries as well as the fancies of global superpowers such as the United States and China, Saudi Arabia's foremost trading partners.
New York Stock Exchange
New York is widely seen as the top choice of the royal family, and of Prince Salman in particular. The New York Stock Exchange would provide access to the world's largest pool of capital, and is viewed as a way to solidify the Saudi-U.S. relationship, which has been on the ropes since the terrorist attacks of September 11, in which 15 of the hijackers were Saudi. The relationship took another hit during the presidency of Barack Obama, whose foreign policy was perceived in the country to be deferential to Saudi Arabia's historic antagonist Iran.
President Donald Trump visited Saudi Arabia in May, his first visit to a foreign country as president. The visit with Saudi King Salman bin Abdulaziz Al Saud was seen as an important symbolic gesture for the two countries. The Saudis marked the occasion with the purchase of $110 billion in U.S. arms, a display to the new president of the kingdom's friendship and economic importance.
"It is part and parcel of a pro-America project, in contrast to Iran," Princeton University professor Bernard Haykel said. Haykel, the director of Princeton's Institute for Transregional Study of the Contemporary Middle East, North Africa and Central Asia, said that project included attracting more foreign direct investment, investing heavily in the U.S., and working with American forces against ISIS.
The arms purchases and a listing in New York would be part of a strategy of shoring up U.S. support against Iran, Atlantic Council Global Energy Center senior fellow Jean-Francois Seznec said.
"It all boils down to Iran," he said "The Saudis are very upset about Iran, and they want to be sure that we are keeping their back."
The kingdom has said they plan to list about 5% of Aramco publicly, and could split the listing on multiple markets. Besides London and New York, Hong Kong is also seen as a key contender for a piece of the listing, with China being the top purchaser of Saudi oil. The Saudis are also likely seeking to woo the Chinese from their close relationship with Iran, a key strategic ally for the Asian country.
A small portion of the company will also likely be listed on Saudi Arabia's own stock exchange, Tadawul.
New York is a risky bet for the Saudis, however, because of legislation passed by Congress in late 2016 that could open the country up to liability for alleged contributions of material aid to the September 11 attackers.
The Justice Against Sponsors of Terrorism Act (Jasta), the only legislation to pass despite a presidential veto from Obama, enabled insurance companies such as Liberty Mutual and Safeco as well as hundreds of families of September 11 victims to sue the kingdom. While the court cases are continuing to work through the system, experts have said that publicly listing Aramco in New York would increase its liabilities and could even put the country at risk of a seizure of its assets.
Trump has not spoken publicly about Jasta since the election, though he did chastise Obama for vetoing the law during the campaign.
Seznec said that Jasta could create "major problems" for Saudi Arabia should it decide to list the company in New York.
The general consensus is that the Saudis have not yet selected a market for the listing, leading some to speculate that civil servants may disagree with the royal family on the advantages of New York.
"A lot of the civil servants, who are extremely strong in the Kingdom, would prefer to do it in London," Seznec said. "Listing in New York was a total nonstarter until Trump went to Saudi Arabia and was dined and flattered beyond all logic, so maybe they would bite the bullet and list half of it in New York."
While global issues threaten to delay the listing, domestic pressures may keep it on schedule.
That is because Aramco's public listing is part of a larger economic package -- called Vision 2030 -- intended to diversify Saudi Arabia's economy, improve the country's transparency, disentangle the royal family from business dealings, and encourage foreign investment.
"Listing in London or Riyadh or both, or in Hong Kong, they will be forced to give a lot of details on the company," Seznec said, saying the listing is "the only way to make [Aramco] fully transparent."
Seznec said the listing is not designed just to raise money - but that money could be useful. Saudi Arabia has been whipping through its foreign reserves recently, spurred by its war in Yemen and declining oil prices. So far, for Saudis, Vision 2030 has meant cut bonuses, increased taxes, and decreased subsidies.
"When I was there in April people were not happy at all at the first signs of what vision 2030 means," Ottaway, the Wilson Center specialist, said.
The country's foreign assets sank below $500 billion for the first time in April, from a peak of more than $730 billion in 2014. Economists believe the decline in foreign reserves is at least partially due to the country's intervention in Yemen, now in its second year. Saudi Arabia doesn't disclose how much it spends in Yemen, but estimates suggests the number is billions of dollars per month.
"It's certainly a major expense, and it doesn't seem like it's going to end any time soon," Ottaway said. "It's constantly draining away their foreign reserves."
An IPO that could generate up to $100 billion for the country could ease some of the strain on the reserves, which might prove tempting.
"The war in Yemen confirms the need to diversify resources," Eid-Oakden said.
According to Eid-Oakden, the war in Yemen is only one example of Saudi Arabia's plans for a more proactive foreign policy - and that could require a lot of money in the years to come.
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