Why the IPO of Saudi Aramco will not make African emulators

par Jacques Leroueil

The Saudi authorities have been calling for the mastodon Saudi Aramco - the world’s leading producer of black gold - to be listed on the stock exchange four years ago. What can we give ideas to African states that hold commodities assets? Nothing is less certain….

Announced, in all modesty, as « the greatest in the history of mankind », the IPO of the Saudi Aramco oil company broke all records. With $25.6 billion raised, the transaction, completed on Wednesday, December 11, on the Riyadh Stock Exchange, is the largest public offering in stock market history. Better still, this introduction makes the Arab public company ($356 billion in revenues and $111 billion in profits in 2018) the world’s largest market capitalization (more than $2 trillion in value), far ahead of the American digital giants Apple, Microsoft and Amazon, which until then dominated international rankings. This would multiply by five the value of the Saudi stock market ($2,600 billion) and propel it to the seventh position of the world’s financial markets.

Applied to African latitudes, this type of operation - the IPO of a major public oil or mining company - would have an even more spectacular multiplier effect.

African reluctance

But the Saudi initiative should also be emulated on the continent. However, in the present circumstances, this possibility seems very unlikely. And for good reason: many African States remain reluctant to reduce or sell their shareholdings in companies considered strategic. Where are, for example, the Gabon Oil Company, the Nigerian National Petroleum Corporation, or the Algerian Sonatrach? These are all potential stock market giants who could change the current size of their domestic financial markets completely. The Lilliputian stock exchange in Algiers ($400 million in cumulative valuation) could thus see its capitalisation multiplied by 100 (!), all at once, if the State decided one day to list the hydrocarbon giant Sonatrach. The same applies to the Sonangol oil company or the Gécamines mining company, which are present in two major African countries without stock markets (Angola and the DRC), but which could tomorrow, if they so wished, take centre stage on the continental financial scene.

Basically, why put « national treasures » - cash cows from existing regimes - on the market, share profits and dilute decision-making power when funds can be raised by other means (bank debt and bond issues in particular)? This is the view that many African governments seem to be taking, but not only. The Saudi authorities, under the leadership of Crown Prince Mohammed Ben Salman, were thus unable to completely curb certain reflexes at the time of Saudi Aramco’s initial public offering. Most financial analysts point out that with only 1.5% of the company’s capital put up for sale, the leaders of the Wahhabi kingdom first made a nice comeback on their stated desire for economic reforms and openness while preserving the essential, i. e. the power to act as they please. And so much the worse for the moods of investors, some of whom have already expressed their concern about the opacity and control of the ultra-majority shareholder. There is no doubt that many African decision-makers would have adopted this kind of posture. In this sense, as long as these companies, symbols of national sovereignty, are considered as guarded chases of States, their initial public offering will remain extremely rare.

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