VTalking about “rolling heads” when it comes to Saudi Arabia has a macabre aftertaste. After all, the fanatical religious regime actually regularly beheaded people who were targeted. Perhaps that's why “Stühlerücken” sounds more appropriate – although it only vaguely describes the dramatic changes that the ruler, Crown Prince Mohammed bin Salman, is currently pushing.
He dismissed Oil Minister Khalid al-Falih, one of the country's most powerful men, over the weekend and replaced him with a member of the ruling clan. A few days earlier, he has already filled the head of Aramco, the largest and most important oil company. And Aramco is all about this chess move.
Apparently, the company is about to go public soon – it would probably be the largest IPO of all time. With the money, the ruler then wants to implement his visions, with which he wants to lead Saudi Arabia to new economic strength and power.
The post of Oil Minister and the role of Aramco's Chief are among the most important positions in Saudi Arabia. After all, all the wealth is based on the oil extracted from this company, which has the largest oil reserves in the world. For decades, both leadership roles have been in one hand, and for decades there have been no changes – by 2016, al-Falih's predecessor, Ali al-Naimi, held the two posts for over 21 years, until he was 81 finally handed the staff over.
Aramco's IPO had to be canceled in 2018
But al-Falih had to go now after three years. At first, the Crown Prince relieved him of Aramco's chief post at the beginning of the month. He was replaced by Jassir al-Rumayan, previously head of the Saudi State Fund and a close confidant of the Crown Prince. Well, not even a week later, al-Falih had to vacate the Ministry as well. That's where Prince Abdulasis bin Salman, a half-brother of the Crown Prince who, after all, has held functions in the oil industry for many years, is moving in.
Observers see the Revirement as a preparation for an IPO by Aramco. This had been planned last year, but then canceled because it was doubtful due to the low oil prices that the desired market value of the company of two trillion dollars could be achieved. The former oil minister al-Fatih had also repeatedly hinted that he was not too big a fan of the idea of a public listing of the company.
But the Crown Prince now apparently wants to make nails with heads. According to insiders, the decision will be made in the coming days for the financial institutions that are to accompany the billion-dollar IPO. US banks JP Morgan and Morgan Stanley, as well as the Saudi Arabian National Commercial Bank (NCB), have a good chance of gaining a leading advisory role, a Reuters official said.
The initial listing is planned before the end of the year. According to the current considerations, Saudi Aramco should first be listed on the domestic stock exchange, and later on an international trading center.
It would probably be the largest IPO of all time. Even if only a full five percent of Aramco's stock is sold to investors, it would cost around $ 100 billion into the company's treasury – assuming the targeted $ 2 trillion in goodwill is achieved. The largest ever IPO ever, the listing of the Chinese online portal Alibaba 2014 in New York, brought it to an issue volume of 25 billion dollars – just a quarter.
But Mohammed bin Salman needs the money. Because he has big plans. He wants to completely rebuild the country's economy and make it less dependent on oil. This also makes sense to the International Monetary Fund, which published a comprehensive inventory of the reform plans on Monday. A diversification of the economy makes the country more independent of the fluctuating oil prices and prepares it for the time after the oil. But above all: “Jobs must be created for the many young Saudis who enter the labor market,” said the IMF.
But this is exactly where the IMF sees one of the main problems. In the private sector, the average salary for Saudi workers is around $ 25,000 a year, and even $ 35,000 in government services. However, “Productivity in Saudi Arabia seems to be below the level of countries with similar wages,” notes the IMF, especially given the low education levels of the Saudis. So, ultimately, the IMF sees only one solution: wages have to go down. However, this can not be an option for the Crown Prince – that would affect the millions of young Saudis, among whom he finds the greatest support.
He prefers to rely on a gigantic construction project. On the coast of the Red Sea, a complete new city is to be built: Neom. These days, the first contracts were signed with two Saudi construction companies. However, international investors are not yet convinced of the project, which is expected to cost an incredible $ 500 billion.
And the financing is not yet. The IMF estimates the country's budget deficit at 6.5 percent this year – there's not much room left for further spending. The money must therefore come from another source, and the Aramco IPO plays a crucial role. The next few weeks will therefore decide whether this plan succeeds. If not, it could come to the levers of power in Saudi Arabia again to the chairs.
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