INSUBCONTINENT EXCLUSIVE:
Saudi Arabia can still generate cash from alternative sources and move ahead with other reforms.The king spoke, and a $2 trillion dream went
For the past two years, Saudi Arabia has prepared to place up to 5 percent of its national oil company on the stock market
Officials talked up the Saudi Aramco initial public offering (IPO) with international exchanges, global banks and United States President
Donald Trump.The planned listing was to be the cornerstone of the kingdom's promised economic overhaul and, at a targeted $100 billion,
It was the brainchild of 32-year-old Crown Prince Mohammed bin Salman, heir apparent of the world's largest oil exporter.But after months
of setbacks, the international and domestic legs of the IPO were pulled.The reason: the prince's father King Salman stepped in to shelve
it, three sources with ties to government insiders told Reuters.The decision came after the king met with family members, bankers, and
senior oil executives, including a former Aramco CEO, said one of the sources, who requested anonymity
Those consultations took place during Ramadan, which ended in the middle of June.The king's interlocutors told him that the IPO, far from
helping the kingdom, would undermine it
Their main concern was that an IPO would bring full public disclosure of Aramco's financial details, the sources said.In late June, the
king sent a message to his diwan, or administrative office, demanding that the IPO be called off, the three sources said
The king's decision is final, a second source said."Whenever he says 'no', there is no budging," the source said.After Reuters reported
last week that the deal had been shelved, Energy Minister Khalid al-Falih said the government was committed to conducting the IPO at an
unspecified date in the future.A senior Saudi official referred Reuters to that statement and repeated that the government, Aramco's
shareholder, was working towards an IPO when conditions were right."We are surprised that despite this statement, that the Government
continues actively to plan for the IPO, Reuters persists in asking questions alleging that plans are halted.""Aramco's shareholder is the
Government of Saudi Arabia
His majesty, King Salman, has delegated management of the IPO to His Royal Highness the Crown Prince, and a Committee which includes the
Ministers for Energy, Finance and Economy
Therefore, decisions around the nature and timing of the IPO, will be decided by the Committee for the Government's approval," the
official said.In a country ruled for decades by the Al Saud dynasty, it is not surprising that the king ultimately decides
But the shelving of the Aramco IPO is a major blow to the prince's Vision 2030 reform programme, which aims to fundamentally transform
Saudi Arabia's oil-dependent, state-driven economy.It suggests the king is keeping the new unilateral power of the young prince - accrued
soon after his father's accession to the throne in January 2015 - in check.It also raises doubts about Riyadh's management of the IPO
process and commitment to making the economy more transparent, some investors say.TAKING THE REINSWhile King Salman has the final say on
policy, he has given great authority to his son, who is known as MbS.After assuming powers as defence minister and chief of the royal court
in January 2015, MbS launched a war in Yemen, adopted a more assertive stance towards arch-rival Iran, and implemented a diplomatic and
trade boycott of Qatar.Taking the reins of a powerful new economic council, he set out to tighten state spending, grow the private sector
and win foreign investment.The king also allowed him to push through high-profile social reforms including ending a ban on women driving and
opening cinemas in the deeply conservative Muslim country.MbS entered the line of succession in April 2015, replacing an uncle as deputy
Two years later, he was elevated to crown prince in a palace coup that removed his cousin Prince Mohammed bin Nayef, the interior
minister.The king has intervened at times.Most notably, when MbS gave the impression last year that Riyadh endorsed the Trump
administration's still nebulous Middle East peace plan, including United States recognition of Jerusalem as Israel's capital, the king
made a public correction.At the Arab League summit in April, he reaffirmed Riyadh's commitment to the Arab and Muslim identity of
Jerusalem following an uproar in the Islamic world
Will he be the king who sold Aramco, who sold Palestine" the second source said.GRINDING TO A HALTIt is not clear exactly which of the IPO
arguments prompted King Salman to make the decisive call on Aramco.But industry experts and sources previously told Reuters that
preparations had been slowing for months for at least two reasons: scepticism about MbS's public declaration in 2016 that the sale would
give the whole company a value of $2 trillion valuation, and concern about the legal risks and tough disclosure requirements associated with
a foreign listing.By April, Aramco stopped paying some of the banks working on the deal their retainer fee, three banking sources told
This is usually a fixed fee to ensure advisors do not lose out completely if the deal falters
An Aramco official declined to comment.Then, while the king was deliberating, in mid-June, the banks, including JP Morgan and Morgan
Stanley, were invited to pitch for something different.They were instead asked to present proposals for Aramco's acquisition of a stake in
petrochemicals giant SABIC from the sovereign wealth fund PIF, a banking source said.That was an initial sign that plans for the listing
were stalling and that Riyadh was looking to raise funds elsewhere, the banking sources said.The senior Saudi official said that Aramco's
interest in acquiring a stake in SABIC was in line with its objective of being the world's leading energy and integrated chemicals
business, and did not alter the government's intent to list Aramco."Transferring SABIC's ownership from the PIF to Saudi Aramco will
enable PIF to boost strategies and governance and enhance PIF's investment portfolio," the official said."Such a strategic acquisition
would necessarily have an impact on the timeline, but not the intent, of an IPO (of Aramco)."Spokeswomen for JPMorgan and Morgan Stanley
declined to comment on whether their banks have any role in the SABIC deal.BLOW TO AGENDASaudi Arabia can still generate cash from
alternative sources and move ahead with other reforms
But MbS had promised the listing would help create a culture of openness in the secretive kingdom.As well as raising concerns about that
commitment to transparency, the shelved IPO contributes to a sense of unpredictability after scores of top royals, ministers and businessmen
were rounded up in an anti-corruption campaign last November.The sources said that even though the king's decision was a blow to the
prince's agenda, he is still the favourite son and heir with a major influence on policy.Rather, they say, it suggests the king wants to
show that he will be the deciding voice for the foreseeable future."I'm not sure that I would see it as an undermining of the rule of the
It's much more likely ensuring that he doesn't go off the deep end," said James Dorsey, a senior fellow at Singapore's S
TheIndianSubcontinent staff and is published from a syndicated feed.)
