Saudi Shakedown 2.0: Kingdom “Asks” Country’s Billionaires To Be Anchor Investors In Aramco IPO
On an otherwise silent Saturday night, Saudi Arabia shocked the energy world when it announced that the country’s energy minister, Khalid al-Falih was suddenly and unceremoniously replaced by Abdulaziz bin Salman (or AbS), half-brother to Crown Prince Mohammed bin Salman (or MbS), and since the last time the Saudi energy minister was replaced marked the dramatic change in Saudi energy strategy (see here for our take on the last days of Ali al-Naimi), we were wondering just what major evnrt was hiding up Saudi Arabia’s sleeve this time.
We didn’t have long to wait for the answer, because less than two years after the historic Saudi purge and arrest of the country’s billionaires in November 2017, most notably Prince Bin Talal, in an unprecedented shakedown meant to refill the kingdom’s rapidly emptying coffers, moments ago Bloomberg reported that MbS was preparing for shakedown #2, as “Saudi Arabia held discussions with some of the kingdom’s wealthiest families about becoming anchor investors in Aramco’s mammoth stake sale.” And by “discussions”, they mean King Salman’s administration made them an offer they simply couldn’t refuse.
In retrospect, with Softbank in dire straits after the WeWork fiasco, and few oligarchs outside of Saudi Arabia willing to stake their wealth on higher oil prices at a time when the world is headed for recession, Chinese oil demand is slumping and shale is set to flood the world with excess oil, Riyadh had few other options. And so, as Bloomberg reports, Saudi officials made initial contact with some top business families on behalf of the oil giant.
Why the shakedown? According to the report, the kingdom is aiming to raise at least 1% to 2% of Aramco from these investors, and the amount each family invests will likely hinge on the company’s valuation, another person said.
At a time when money burning WeWork is aggressively slashing its idiotic “valuation”, and according to Dow Jones is even contemplating pulling the IPO altogether, Saudi Arabia – which has been desperate to sell a portion of Aramco for years to raise much needed capital – has turned to its wealthiest families to ensure there’s enough demand for what could be the biggest initial public offering. Whether that demand is voluntary or comes at the barrel of a figurative gun apparently does not matter.
Hilarious, Bloomberg notes that “the kingdom’s economy is struggling to shake off the impact of lower oil prices and a 2017 purge that ensnared dozens of billionaires and officials” and reminds us that “the crackdown undermined business confidence and prompted many billionaires to consider shifting some of their fortune abroad.”
In retrospect, those billionaires didn’t shift their fortune abroad fast enough.
And the punchline: “some” (read most) of the families that have been approached had relatives briefly held in the Ritz-Carlton hotel in Riyadh as part of the purge, which the government called an anti-corruption crackdown, one of the Bloomberg sources said. They aren’t, however, being forced to invest, that person said.
Anchor investors usually commit to buying shares in a company before an IPO is opened up to other investors to control pricing and ensure that the sale is successful. The only difference is that most anchor investors do so voluntarily. There is nothing voluntary about what Saudi Arabia is doing.
In fact, in less polite circles it’s called extortion.