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'The family silver is up for sale': How the Saudi Aramco share offering marks the start of big changes for the Kingdom

Camilla Hodgson
Saudi Aramco's record breaking international IPO might not go ahead after all

LONDON -- Saudi Aramco's share offering is likely to occur when the price of oil rises, and will herald changes in the way the traditionally closed Kingdom does business, according to an an investment adviser.

Saudi Aramco has been "disproportionately reported on," says CEO of investment advisory firm OCO Global Mark O'Connell, given the other changes occurring across the Gulf and in Saudi Arabia in particular, which are "far more interesting."

The flotation, he says, is aimed at "replenishing their federal reserves." But it goes comparatively little way to furthering Saudi's Vision 2030, the state-led drive to diversify the country's oil-based economy, encourage international investment and reform the media image it still has as a "closed, desert kingdom."

Saudi Aramco is estimated to be worth around £1.5 trillion, and is deliberating over which financial centre to sell 5% of its shares in. It has drawn media attention in the UK in particular, after regulator the Financial Conduct Authority proposed relaxing stock market rules in order to permit it to list in London.

Given that the price of oil is low -- WTI crude was at $US49 per barrel on Tuesday -- Saudi Aramco may wait to float until the price picks up again, says McConnell. Although earlier this year both the UK and France announced plans to ban the sale of both diesel and petrol cars from 2040. But aeroplanes generally still rely on oil, and the price of oil has historically been cyclical.

"I think I would still bet the farm on the future of oil for our generation," says O'Connell.

The most interesting aspect of the Saudi Aramco flotation, he says, is the principle that "the family silver is up for sale." Some Saudis, he says, are unhappy that their national wealth is planning to be sold off, and that foreign investors will now have a degree of oversight in the company.

On a wider level, the flotation plays into Saudi's Vision 2030, says O'Connell. This new "everything's for sale" model is likely to impact all areas of the Saudi economy and all regions of the country, he says -- and, whether or not this is well received, Saudis have no choice but to diversify, given the long-term lack of sustainability of oil.

Historically, a large portion of the Saudi population has worked for the state: 67% of the entire workforce (excluding non-Saudi workers) were employed by the public sector in 2016, according to the government's 2016 Labour Market Report. Meanwhile, pubic sector wages for Saudi nationals have consistently been higher, on average, than private sector wages since 2011, and the average was almost double in 2015.

But much of the public sector is now also being privatised, as the abundance of highly-paid, public sector employees begins to be unsustainable. This has opened up "huge opportunities across the board," says O'Connell, from education, to healthcare to transport.

"I've never seen change, and the pace of change, as I've seen in the last couple of years. And it's accelerating," says O'Connell. This is the "liberalization of Saudi, from a business point of view."

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