4 ms·

It does, they're trying to diversify their economy beyond oil. The IPO is part of getting capital for a sovereign wealth fund.

by Aloha 8y ago

sandworm101 8y ago
How does floating their state business on the stock market diversify their economy? If anything, dollars that might have been invested in non-oil industries will instead purchase aramco stock. The national economy will be only more dependent on oil.
- Aloha 8y ago
  they're trying to use the cash from the IPO to fund a wealth fund to create investment within the country.
  - pm90 8y ago
    Sure, that would be a one time cash bonus raised from the IPO. Couldn't they instead just funnel the cash earned from Aramco to fund whatever they have in mind? My gut tells me its more cargo-cult than anything concrete: MBS just wants to show everyone that the worlds most valuable corporation is Aramco; and wants to curry favor with the elite bankers (and everything that comes with those kinds of relationships) who would make a killing from the IPO.
    - nebolo 8y ago
      There is literally no difference. The value of Aramco is the discounted value of all future cash flows. So selling 5% in an IPO is equivalent to selling 5% of all future cash flows (discounted appropriately). This allows them to diversify now rather than later/gradually. There are other non-financial advantages of having at least partial public ownership of a publicly owned company like Aramco, like increased transparency and accountability.
      - adventured 8y ago
        There is actually a critical difference depending on your oil market projections, which is why they're diversifying now rather than later. A very optimistic projection would be that Saudi can gradually extract & sell most of their oil before the clock runs out. If that doesn't happen, they could lose a large amount of value as global energy markets change dramatically over the next 30-50 years. Half of the US oil consumption is gasoline (9.3 million barrels per day oil equivalent, nearly equal to Saudi's output), and that's almost entirely going away with the switch to electric vehicles in the coming decades. China - the world's other giant oil & gasoline consumer - will similarly move almost exclusively to electric vehicles, as will the rest of the developed world. If you're a petro state, you don't want to be sitting on 100 years worth of oil and betting on extracting annual payouts from it over that time (comparable to what they can get for it now).
        supertrope 8y ago
        Americans will only switch away from gasoline burning cars when the price makes it un-affordable or there is a supply shock.
        jjeaff 8y ago
        Having a cheaper electric alternative to a gas auto with similar or better performance will quickly make gas vehicles seemingly "unaffordable". Very few Americans will stick with a combustion engine if it is the more expensive alternative. In other words, gas prices don't have to rise, electric vehicle prices need to continue to fall. Which they will.
        perl4ever 8y ago
        I could drive much less (I drive below average miles anyway though) and I could get a much more fuel efficient car. I'm not going to get a house with a car charger, so it's unlikely I will get a rechargeable car, let alone one that is fully electric. My apartment complex has one charger for hundreds of units. Incidentally, there is a charger near the gym I go to and I noticed that it does not display the price in advance. If regulators do not force electric car chargers to show prices like gas stations do, it tells me nobody is serious.
  - deleted 8y ago
    [deleted]
- tedsanders 8y ago
  Right now Saudi Arabia owns an uncertain stream of future profits from Aramco. By selling stock, they are converting a small portion of that uncertain stream of future profits into a bigger pool of money upfront that can be diversified away from oil. For example, they can invest those dollars into SoftBank's giant funds, which are investing in ridesharing companies like Uber, Lyft, Didi, Cruise Automation, etc. You are right that every dollar Saudi Arabia pulls out of Aramco is a dollar that someone else puts in. But hopefully these transactions are win-win by reducing Saudi Arabia's overall risk. Plus, putting Aramco on the open market may lead to more accurate information about its worth, which would help Saudi Arabia plan better.

It does, they're trying to diversify their economy beyond oil. The IPO is part of getting capital for a sovereign wealth fund.

by Aloha 8y ago

It does, they're trying to diversify their economy beyond oil. The IPO is part of getting capital for a sovereign wealth fund.

sandworm101 8y ago

How does floating their state business on the stock market diversify their economy? If anything, dollars that might have been invested in non-oil industries will instead purchase aramco stock. The national economy will be only more dependent on oil.

Aloha 8y ago
they're trying to use the cash from the IPO to fund a wealth fund to create investment within the country.
- pm90 8y ago
  Sure, that would be a one time cash bonus raised from the IPO. Couldn't they instead just funnel the cash earned from Aramco to fund whatever they have in mind? My gut tells me its more cargo-cult than anything concrete: MBS just wants to show everyone that the worlds most valuable corporation is Aramco; and wants to curry favor with the elite bankers (and everything that comes with those kinds of relationships) who would make a killing from the IPO.
  - nebolo 8y ago
    There is literally no difference. The value of Aramco is the discounted value of all future cash flows. So selling 5% in an IPO is equivalent to selling 5% of all future cash flows (discounted appropriately). This allows them to diversify now rather than later/gradually. There are other non-financial advantages of having at least partial public ownership of a publicly owned company like Aramco, like increased transparency and accountability.
    - adventured 8y ago
      There is actually a critical difference depending on your oil market projections, which is why they're diversifying now rather than later. A very optimistic projection would be that Saudi can gradually extract & sell most of their oil before the clock runs out. If that doesn't happen, they could lose a large amount of value as global energy markets change dramatically over the next 30-50 years. Half of the US oil consumption is gasoline (9.3 million barrels per day oil equivalent, nearly equal to Saudi's output), and that's almost entirely going away with the switch to electric vehicles in the coming decades. China - the world's other giant oil & gasoline consumer - will similarly move almost exclusively to electric vehicles, as will the rest of the developed world. If you're a petro state, you don't want to be sitting on 100 years worth of oil and betting on extracting annual payouts from it over that time (comparable to what they can get for it now).
      - supertrope 8y ago
        Americans will only switch away from gasoline burning cars when the price makes it un-affordable or there is a supply shock.
        jjeaff 8y ago
        Having a cheaper electric alternative to a gas auto with similar or better performance will quickly make gas vehicles seemingly "unaffordable". Very few Americans will stick with a combustion engine if it is the more expensive alternative. In other words, gas prices don't have to rise, electric vehicle prices need to continue to fall. Which they will.
        perl4ever 8y ago
        I could drive much less (I drive below average miles anyway though) and I could get a much more fuel efficient car. I'm not going to get a house with a car charger, so it's unlikely I will get a rechargeable car, let alone one that is fully electric. My apartment complex has one charger for hundreds of units. Incidentally, there is a charger near the gym I go to and I noticed that it does not display the price in advance. If regulators do not force electric car chargers to show prices like gas stations do, it tells me nobody is serious.
- deleted 8y ago
  [deleted]
tedsanders 8y ago
Right now Saudi Arabia owns an uncertain stream of future profits from Aramco. By selling stock, they are converting a small portion of that uncertain stream of future profits into a bigger pool of money upfront that can be diversified away from oil. For example, they can invest those dollars into SoftBank's giant funds, which are investing in ridesharing companies like Uber, Lyft, Didi, Cruise Automation, etc. You are right that every dollar Saudi Arabia pulls out of Aramco is a dollar that someone else puts in. But hopefully these transactions are win-win by reducing Saudi Arabia's overall risk. Plus, putting Aramco on the open market may lead to more accurate information about its worth, which would help Saudi Arabia plan better.