WHEN $25.6B IS A FAILURE
That... and also, it’s never a good time to try to tamp down the expectations of an early-30s autocrat with a hazy understanding of how markets work, and a penchant for chopping people into bits. While MBS was plotting Saudi Arabia’s emergence onto the global capital markets stage, he was also behind the notorious October 2018 death of U.S.-based journalist Jamal Khashoggi. After getting under MBS’s skin by criticizing the regime in columns for the Washington Post , Khashoggi was strangled and his body was cut into pieces by Saudi agents at the country’s consulate in Istanbul. The CIA concluded that MBS ordered the killing. It’s never a good time to try to tamp down the expectations of an early-30s autocrat with a hazy understanding of how markets work, and a penchant for chopping people into bits. MBS had already shown his true colors in November 2017, when he detained a few hundred fellow Saudi royals, business leaders, and others in the Riyadh Ritz-Carlton for months – ostensibly as part of a crackdown on corruption. Being a prisoner at a fancy hotel isn’t as bad as sitting in a small room with bars... But many of the Ritz prisoners were hospitalized for physical abuse. Some of them were forced to turn over money, real estate, and shares, without any legal process. It was MBS’s way of showing – Game-of- Thrones-in-the-desert style – the royal family,
goose of Aramco wasn’t delivering enough rose petals to the family or rice to the people. The International Monetary Fund says the country will post a budget deficit equal to 7% of GDP. That makes the U.S., at around 4% last year, seem downright frugal. MBS was concerned about the economy’s “oil addiction,” and wanted to reduce Saudi Arabia’s dependence on the oil price. His economic diversification program, called Saudi Vision 2030, required even more golden eggs. The initial plan was to sell a 5% stake in Aramco for $100 billion – valuing the company as a whole at an incredible $2 trillion. An offering that size on the New York or London exchange would have been four times bigger than the previous record holder, Alibaba’s (BABA) 2014 IPO. By the extravagant standards of the hyper-rich Saudi leader, it would have been an appropriate coming-out party for Aramco and Saudi Arabia... and of course for MBS himself. But you can only sell something if you have a buyer. And if the buyer doesn’t want to pay the price the seller is asking, there’s no sale. The banks that help the buyer and seller find common ground in an IPO earn a percentage of the total sum raised. So bankers trying to get into the deal had every reason to pitch a high valuation to MBS – so that they could make more money themselves (those Cybertrucks aren’t going to pay for themselves). THE SMALL MATTER OF... VALUATION
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December 2019
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