American Consequences - December 2019

sell more shares – remember, he was aiming to sell 5% and only sold 1.5%. But in the meantime, investors will be wary of buying shares if they’re anticipating a huge wave of new shares hitting the market. Also, Aramco is already the world’s biggest company. It’s worth more than the five next- biggest oil companies combined. How much bigger can it get? This isn’t a share that’s going to double over the next year – if ever. Aramco promised investors a $75 billion dividend... which equates to around a 4.4% dividend yield at the IPO price, which is less than what you’d earn if you held shares of almost any other big energy company. So Aramco’s dividend promises aren’t going to draw in buyers either. A LONG-TERM PEAK FOR OIL And in the bigger picture, the fact that Saudi Arabia is selling Aramco at all is a bad sign. Saudi Arabia is the ultimate insider in global oil markets. When insiders sell, it often means that they think that the next direction for the share price is down. The writing is on the wall for oil... In the coming years, it will face increasingly stiff competition as the prices of alternate energy sources continue to fall. It might take decades, but oil is going the way of fax machines, hard-copy pornography, and snail mail. I think we’ll look back on the Aramco IPO as the long-term peak of the oil market. And that’s enough to concern even MBS – to say nothing of small Aramco shareholders.

– Saudi fund managers, state-controlled funds, and other pools of capital linked to the government – bought heavily into the Aramco offering. Around 4.9 million Saudi retail investors did too... urged on by religious leaders and supported by interest-free loans provided by friendly local banks. And you can bet a lot of members of the Saudi elite (remember the Ritz?) gave until it hurt. Regional investors like state-backed funds in Kuwait and Abu Dhabi were also encouraged to buy in to the deal as a show of support. In the end, international investors – buying through the Saudi exchange – accounted for just around 10% of total shares sold in the offering. The deal got done. But its execution was terrible... The planning was worse... And everyone was left with a farm full of egg on their faces. BEWARE ARAMCO What’s next for Aramco? With around 15% of the Saudi population owning shares directly (many of them having bought with leverage), a sharp decline in the share price would be bad news for political stability – and for MBS. In coming months, Saudi Arabia – which, as the most powerful member of oil cartel OPEC, has a lot of sway in the matter – will do whatever it can to keep the price of oil steady. The oil price aside, Aramco shares face very stiff headwinds – even though after the offering, MBS urged more buying by his “friends” to push the market capitalization closer to his dream $2 trillion level. In coming months and years, MBS will want to

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