The Saudi Aramco initial public offering is wheeled out to investors the same way an ailing, elderly Arab ruler is put on display — to remind subjects of the immense power of patronage, and the threat of retribution for disloyalty. But it is also sad and tiresome, a farce that everyone knows is a representation of the past and not where things are headed. The Aramco IPO has become a regular reminder to those in the finance world who depend on the Saudi government for fees, for access to deals and for that slim possibility that the offering goes through. The message is clear — stay loyal, just in case.
Aramco as a company is doing just fine. Its success is its singular purpose and simple business model — to produce and export oil to generate revenue for the state. The IPO has never been about raising capital for the company but rather for the enormous spending requirements of the state. Recent major acquisitions demonstrate how the company serves its major shareholder's interests — in other words, what the government, or more specifically, its leadership, wants. The state required funding for the Public Investment Fund, so Aramco purchased the Public Investment Fund of Saudi Arabia's 70% stake in SABIC, the Saudi petrochemical giant, at a cost of nearly $70 billion. The Aramco purchase of SABIC shares enabled the fund to further its own acquisition spree and domestic development projects, an act of government accounting gymnastics.