By all the main advertised yardsticks of success, the flotation of Saudi Aramco can be called a failure even before the shares have started trading.
Once upon a time, the word’s most profitable company was going to be worth $2tn (£1.5tn), the number coveted by the Saudi Arabian crown prince, Mohammed bin Salman. That’s not happening. The official price range for the initial public offering (IPO) was set at the weekend at $1.6tn to $1.7tn.
A secondary goal was to insert Aramco shares into the portfolios of international investors. A few outsiders will still buy, but the Aramco IPO has morphed into a smaller affair in which the main targets are locals and other Gulf investors. Saudi banks have even been issuing loans to local retail investors to buy stock. Meanwhile, Aramco’s management has cancelled marketing roadshows in the US, Asia and Europe.
You can see the effect in the dwindling proportion of shares to be sold via the listing. A couple of years ago, it was imagined that 5% of Aramco could be sold in the first offering. Expectations were managed down to 2%-3% in recent weeks. In the event, only 1.5% will be sold.
The third original ambition has almost been forgotten: it was to get Aramco listed on a foreign stock exchange as well as the local Tadawul market. That is why, for example, London’s financial dignitaries made a beeline to Riyadh and why the Financial Conduct Authority, embarrassingly, rewrote its listing rules to accommodate state-controlled behemoths in its “premium” category. But the IPO was redesigned as a Tadawul-only affair a while back and there is no timetable for when, if ever, a secondary listing on a foreign exchange will be pursued.
The Saudis could argue that the IPO is at least happening, which is an achievement of sorts. Yes, receipts from selling even 1.5% of the company will still be about $25bn, a useful sum with which to start reforming the Saudi economy. And, yes, Aramco will still be the world’s most valuable company.
But most of those milestones could have passed without the need to recruit a small battalion of western investment banks. Citigroup, Credit Suisse, Goldman Sachs, HSBC, JP Morgan, Merrill Lynch and Morgan Stanley were hired, in large part, to round up international buyers who have not materialised.
One can speculate on the reasons for the tepid demand from outside the region. Revulsion at the killing of the journalist Jamal Khashoggi in the Saudi consulate in Istanbul in October last year? Worries about Aramco’s governance? Concern about attacks on refineries? Or a fundamental difference of opinion about valuation given that shares in BP, Shell, Chevron and Exxon offer higher dividend yields? Probably all of the above.
The IPO will roll on, and a great triumph will presumably be declared for official purposes. But it’s nothing of the sort. Instead, pitching Aramco to an international audience has been filed under “too difficult for now”.
Johnson’s £6bn U-turn
Boris Johnson can’t have it both ways. If cutting corporation tax leads to higher tax receipts – which was the Conservative party’s position until the prime minister appeared at the CBI conference on Monday – then cancelling a planned reduction from 19% to 17% in 2020 should produce less money for the Treasury, and thus less money to spend on public services.
Johnson’s new stance, though, is the exact opposite. He now says the rate must stay unchanged at 19% in order to save £6bn for the NHS and “other priorities of the British people”.
There’s an election on, so we are supposed to accept political U-turns with a shrug. But the inconsistency here is breathtaking. In an instant, the Tories have reversed a long-held claim about corporation tax and how a lower rate supposedly serves to generate more economic activity. We’re not talking about small change either: £6bn is roughly another 4.5% on the NHS’s annual budget. You’d think the prime minister would bother to explain.
Nationalisation? No fear
Meanwhile, the stock market continues to deliver its view on Labour winning the election with a majority: not likely to happen. Exhibit A was Friday’s muted reaction in BT’s share price to the shadow chancellor John McDonnell’s radical plan to nationalise Openreach, the company’s broadband division.
Exhibit B is the share prices of Severn Trent and United Utilities, the only two water companies in the FTSE 100 index these days. Both hit two-year highs on Monday. The threat of imminent nationalisation is deemed slight.
