At this point, I could do what lots of other people have done and try to parse Aramco’s finances for you, based on the numbers in its 658-page prospectus filed Nov. 9.
Instead, I’d like to tell you about something that I came across by reading previous Saudi financial documents and that I put together by gleaning information from various places, including a July 2018 Reuters article and the website of Saudi Arabia’s stock market, known as Tadawul.
It involves a transaction from March of this year that produced about $69 billion of cash and Aramco promissory notes for the Public Investment Fund, one of Saudi Arabia’s sovereign wealth funds. In that transaction, Aramco bought the wealth fund’s 70 percent stake in Saudi Basic Industries Corp. (SABIC), a petrochemical company for which Aramco is the major supplier.
As a result of this deal, the wealth fund has swapped a petroleum-based asset for money that it can use to invest in whatever suits the fancy of Crown Prince Mohammed bin Salman.
However, Aramco’s SABIC stake is now worth about 25 percent less than it paid for it. That loss, as best I can tell, has gotten little or no attention.
Let me tell you why I think that’s happening.
It has to do with the fact that the price Aramco paid for its SABIC stake is described in English-language financial filings as $69.1 billion. But given that this deal involves two wholly owned Saudi government entities, the best way to look at it is in Saudi riyals.
Now, watch this. Aramco paid 123.39 riyals a share for 2.1 billion SABIC shares, for a total price of 259.12 billion riyals.
The 900 million SABIC shares that Aramco doesn’t own are traded on Tadawul.
And guess what? When last I looked, SABIC was trading at 92.70 riyals. Aramco, remember, paid 123.39 riyals per SABIC share.
That means the stock market is valuing Aramco’s stake in SABIC at almost 25 percent less than Aramco paid for it. At the current price, Aramco’s stake in SABIC is worth 64.4 billion riyals — about $17.4 billion — less than what Aramco paid.
Even for a big-time, big-profit oil company, that’s a serious hit.
As best I can tell, the price Aramco paid the wealth fund was about what SABIC was trading for in March, when the deal was struck. But who knows? There’s no mention I can find in the English-language Saudi financial filings that I read about how the price was determined. Or whether it was an arm’s length negotiation, or something imposed by the government so that Mohammed could reduce the Public Investment Fund’s reliance on petroleum-based investments.
In addition, I couldn’t find any reference in the Nov. 9 Aramco filing about its SABIC stake being so deeply underwater.
Last week, I sent an email to Hassan Alshaikh, general manager of communications and media operations at the Saudi Finance Ministry, asking about aspects of the Aramco-SABIC deal. I got no response.
Before we proceed, let me make one thing clear. Aramco’s SABIC situation isn’t something that was planted with me by someone seeking to keep the price of Aramco stock down, or trying to embarrass Mohammed for his role in the killing and dismemberment of my late Washington Post colleague Jamal Khashoggi.
This is something that I put together all by myself, with no outside assistance, because I was looking for details about the deal that I couldn’t find in the documents where I learned of the SABIC deal. To wit, the Saudi government’s 2017 sovereign debt offering and the Aramco debt offering that took place earlier this year.
I read those documents and did some other research to prepare myself to write about the Aramco stock offering because I realized long ago that it would almost certainly be one of the biggest deals of our time. Finding the SABIC story was an accidental side effect.
There are plenty of risks involved in investing in things like Aramco debt (whose offering was way oversubscribed) or Aramco stock. These include things like the future of oil prices and the possibility of regime change in Saudi Arabia.
These aren’t questions that can be answered. But there are some that can be. If I were a potential investor in Aramco stock, I’d sure like to know whether the cash-hungry Saudi government will leave Aramco alone to act like an oil company. Or whether it intends to dump more of its holdings onto Aramco at high prices the way it unloaded the sovereign wealth fund’s SABIC stake when SABIC stock was flying high.
That, my friends, is the bottom line.