Saudi Aramco's Record IPO 'Completely Irrelevant to Western Investors,' Says Investment Firm Chairman

November 18, 2019

The world's most profitable company is prepping to go public, but good luck getting a piece if you don't live in the Middle East.

State-owned Saudi Aramco priced its forthcoming IPO and simultaneously shelved its plans for an international roadshow over the weekend, meaning the stock will not be marketed in the U.S., Europe, Japan, or Canada. The oil giant will instead rely on investors in the Gulf to raise about $25 billion in a float that will value Aramco as high as $1.7 trillion ー an eye-popping number that will instantly make it the world's most valuable publicly traded company, but substantially less than the $2 trillion that Crown Prince Mohammad Bin Salman had originally eyed.

Even at a discount, the IPO is overpriced and a bad investment, said George Seay, the founder and chairman of Annandale Capital, a Texas-based global investment firm.

Aside from the fundamentals being out of whack ー Seay said he would never pay more than six times peak earnings for a piece of Aramco ー the money manager told Cheddar that the oil giant shouldn't be on any U.S. investors' Christmas lists, if only for the abysmal human rights record of its state owner.

"You've got a company here that is the national company of a monarchical dictatorship that goes and assassinates journalists who they disagree with in other peoples' countries," Seay said, referring to the brutal 2018 torture and murder of Jamal Khashoggi, which the CIA determined was carried out on the orders of the crown prince.

"That's not a healthy situation."

Even if you could disassociate the morality issues from the desire to make a buck, Seay mentioned a multitude of risk factors in the Gulf that make Aramco a bad bet. Half of Saudi Arabia's entire output was briefly knocked offline by a single coordinated drone attack two months ago. The Saudis have nationalized their oil assets in the past and there's nothing keeping them from doing it again if the IPO is a failure, he said.

Saudi-produced oil is also not the commodity for American investors that it once was, he noted, now that the U.S. is the world's largest producer of crude oil thanks to the shale boom. "We don't need the Saudis like we used to."

Seay called the pricing of the Aramco IPO, set to debut next month on Riyadh's Taduwal stock exchange, "completely irrelevant to Western investors." And while he praised the crown prince for withstanding geopolitical pressure from Iran and remaining a staunch American ally, he said the transformation of the kingdom from a "fringe market" to a tech-forward, global economy still faces a "long, hard road."