How can China’s readiness for an Aramco IPO turn out for Saudi Arabia?
The other day, the media reported that banks in Saudi Arabia intend to provide loans to local investors to finance the national oil company Saudi Aramco. This decision was made in view of the forthcoming sale of the company’s shares. The heads of the banks hope that this initiative will strengthen the economy and leave the management of the company in the hands of the citizens of the country, which is important now, when in the process of IPO Aramco.
The National Oil Corporation of Saudi Arabia is the largest in the world by reserves and production volumes. It is expected that the company’s shares will initially be put up for sale on the stock market of the country – Tadawul. The Aramco government and management plan to attract as many local people as possible to invest in the company. For this purpose, the benefits of IPO are widely reported in the press, and banks are creating special lending programs. However, such an advertising campaign does not yield good results, although Aramco has huge potential – the corporation has every chance to become the most expensive in the world. Now there are not enough large investors for IPO, which can finance a large amount of money to the company. The cost of Aramco is estimated at $1.1-2.5 trillion.
However, if there are no willing investors in Saudi Arabia, they can be found outside. A number of companies from China have already identified an interest in investing in Aramco’s IPO. They agree to invest about $5-10 billion to support the Saudi economy and buy shares of the promising enterprise. The Beijing Silk Road Foundation and other Chinese organizations have expressed their readiness for such a step.
This initiative by China is based not only on the possibility of providing friendly support to another state. Here, first of all, one can see the personal interests of Beijing to expand its influence to the world and restore historical trade routes. Acquisition of Aramco shares will give China an opportunity to dictate oil prices and profit from their increase. Of course, there is also the downside: China will lose money if raw materials become cheaper. This scenario is quite possible due to the growing demand for shale oil from the US.
According to Bloomberg, negotiations between Aramco and two representatives from China – Sinopec Group Corporation and China Investment Corp. But it is too early to speak about the results, everything depends on the amount of investment from China. It should be understood that now Beijing can influence the cost of Aramco. And if initially Saudi Arabia estimated the company at $2 trillion, after the crown prince declared his readiness to reduce the price to $1.6-1.8 trillion.
