Saudi Banks May Lend To Saudi Investors So They Can Invest In Saudi Aramco

Crown Prince Mohamad bin Salman is once again making the rounds and unceremoniously shaking down his country’s elite – this time by asking them to commit to anchor investments in the Aramco IPO, one of the largest offerings ever. Aramco is the world’s largest and most profitable company, and the heart of KSA’s oil-dominated economy. For years, bankers in London, Hong Kong and NYC vied for the right to host the IPO.

But with the IPO apparently about to move forward next week, the prospectus is expected any minute now. That will shed some light on the trading venue and whether KSA is standing by its demands that Aramco debut at a valuation close to $2 trillion.

Whatever happens, the Saudi people will definitely benefit from the billions of dollars flooding into the oil firm’s coffers. But exactly which form these benefits will take remains unclear.

That is, until Thursday, when Bloomberg reported that, in a gesture that would likely help reduce economic inequality in a country where most ordinary people rely on generous state economic benefit system, Saudi Arabia is eliminating borrowing caps on what banks are allowed to lend to local investors to allow more of them to invest in the IPO.

The IPO market has been notoriously soft this year as a spate of young, untested and unprofitable companies debuted, only to be met by a punishing wave of skepticism. The trend culminated with WeWork, heavily backed by KSA via SoftBank’s Vision Fund, deciding to shelve its debut after a painfully public scandal.

But as the country looks for new sources of money to keep the IPO afloat the worst come to pass, several lenders are seriously pushing the envelop, and asking the central bank for a much larger sum of money than the bank would normally be comfortable lending for such a speculative investment. Though the final amount will depend on the bank’s final decision, they’re expected to be more conservative the higher the valuation goes.

Many Saudis are expected to buy into the offering, as are many of the powerful movers and shakers currently attending MbS’s “Davos in the Desert. But by allowing retail investors to leverage up just before a period of driving economic uncertainty (when a downturn could create a debt default chain reaction with serious repercussions).

Many Saudi citizens see buying into the offering as an opportunity to prove their loyalty to a new leader, a leader who brutally tortured members of his own extended family as part of a shakedown to plug a budget hole. A leader who has promised to diversify KSA’s economy away from the energy sector, and to build a sustainable city in the desert. A leader who was once praised as a reformer for legalizing the cinema, and for allowing women to drive. Though all of these accomplishments have been undermined by abuses elsewhere, particularly jailing activists who fought for these causes. 

And while the offering could add as much as $12 billion for the kingdom, as the old saying goes: It’s not over until it’s over.