By Rashid Mohammed Al-Fowzan
WHEN I explained through my Snapchat account and my column last week the mechanism for floating part of Saudi Aramco shares I underlined the fact that the oil giant was not for sale, but some people still insist that share floating means sale of the company.
I personally believe these people float the topic “Aramco on sale” to provoke the public and get more likes and comments on social media, nothing else. Initial public offering or partial privatization of a company does not mean its sale, according to economic principles.
I would like to explain this matter further citing examples for the general public to understand what is meant by partial privatization and for the benefit of those who circulate this wrong information without thorough knowledge about the topic.
Who said partial privatization is sell-off?
Saudi Aramco has announced its intent to float part of its shares for public subscription. We should know the company has various business activities, including oil concessions from the state (oil is owned by the state. The country has proven oil reserves of 260 billion barrels and this figure remains unchanged because of new excavations.
What will be the value of 260 billion barrels of oil? Does the world have enough liquidity today to purchase a company having such a huge asset?
When Saudi Aramco sells its shares in the market, those who purchase its shares would not have any role in decision-making on the future of the company or even to change its policies. When an individual purchases Aramco shares from the market he or she does not receive any oil. They receive just financial documents. It’s same as the SABIC shares. You can purchase any amount of SABIC shares from the market and when you sell it you just receive money, not urea or any other petrochemical product. These are just financial instruments called shares.
The question today is what are the activities of Saudi Aramco. It is engaged in drilling, production, refining, distribution and shipping and its products are oil, gas and petrochemicals.
Then what privatization of Aramco we discuss?
In the previous article I explained the financial and international dimensions of selling part of Aramco shares to the public, comparing it to privatization of SABIC, Saudi Telecom and Maaden, even though oil is a foreign investment.
Foreign investors can have access to local shares through well-known and publicized mechanisms and nothing will prevent them from investing.
We have to be realistic. We need foreign investment to add extra liquidity to the artery of the national economy in order to strengthen the market and its effectiveness. This happens all over the world.
Saudi Aramco is not for sale. Yes, the company plans partial privatization by selling a portion of its shares, and the vision and dimension of Aramco IPO is known to everyone. But some people want to raise the issue of a sell-off to incite the public to protect their own vested interests. They don’t have any facts to support their claims. When the time will prove it what excuses will they have?