The Aramco IPO may now be history, put on indefinite hold several weeks ago, but Saudi Arabia's funding needs have never been greater. As a result, 32-year-old Crown Prince Mohammed bin Salman, aka MbS, has come up with a "novel" scheme to raise tens of billions for the government. According to the WSJ, the de facto Saudi leader is forcing urging Aramco, also known as the Saudi Arabian Oil Company, to raise debt to buy a controlling stake in a petrochemical company from the country’s sovereign-wealth fund. The money would then go to the government - whose latest fund-raising strategy, we remind readers, was to round up the country's oligarchs and hold them in a "hotel" until they paid up - to be spent as MbS sees fit.
Should the deal go through, and there are many reasons why it won't, it would give the Public Investment Fund between $50 billion and $70 billion for all or part of its stake in Saudi Basic Industries, or Sabic. Controlled by the state, Sabic is also the country’s largest publicly listed company, with a market cap of about $100 billion.
Simplifying the money flow: the cash goes from international yield chasers, to a consortium of banks, to Aramco, to Sabic, to the Saudi government.
Two things here:
• First, nobody besides MbS wants the deal. Aramco Chairman Khalid al-Falih "has long been opposed to a deal for Sabic" the WSJ sources said. Meanwhile, Sabic executives worry that the company "would lose its identity in any deal."
• Second, in the absence of an Aramco IPO, Saudi Arabia really has no option; Prince Mohammed’s advisers see a deal between the kingdom’s two largest companies as central to remaking the economy.
And the Saudi economy desperately needs remaking: even though oil prices recently have risen, following the 2014/2015 oil price crash which forced the government to inject billions into the economy (and liquidate more billions in reserves) to keep the populace content and the economy operating, the government is running a massive budget deficit this year after announcing the biggest fiscal stimulus package in the country’s history.