Saudi Arabia is in the throes of a fiscal crisis that is leading the country on a search for new revenue, including an upcoming initial public offering for Aramco, its sovereign oil company, former CIA chief David Petraeus told CNBC.
The kingdom, said Petraeus, who commanded troops in the Middle East as a US Army general, is going broke due to weak oil prices, so an IPO of Aramco stock is a lifeline. “It’s a fact that Saudi Arabia is gradually running out of money, they’d be the first to acknowledge that the sovereign wealth fund has been reduced,” he said. “The deficits each year, depending on the price of Brent crude, can be anywhere from $40 [billion] to $60 billion depending on some of their activities in countries in the region.”
Another fiscal drain, he noted, is the Saudis’ ambitious development plan, which the Aramco IPO proceeds would help fund. “The bottom line is that they need the money, they need that outside investment that is crucial to delivering Vision 2030, which cannot be realized without outside investment.”
The Vision 2030 program, launched in 2017, seeks to boost Saudi Arabia’s economy with non-oil revenue. The decline in oil prices has led to a financial crunch for the country. With Brent crude oil at $62 a barrel, the kingdom needs to fill the revenue gap that opened since the heyday of $100 a barrel petroleum and the emergence of other oil markets. In 2018, the budget deficit was about 136 riyals (around $36 billion) or 4.6% of GDP. In 2019, the estimated deficit is 131 riyals (around $35 billion) or 4.7% of GDP. Next year, it is projected to widen to 187 riyals (around $49 billion) or 6.5% of GDP.
Investors are lining up for the IPO of Aramco in December. The IPO is expected to generate anywhere from $40 billion to $100 billion. Nine US banks are underwriting it. Countries from Brazil to China have expressed interest. RDIF, Russia’s sovereign wealth fund, is reportedly enlisting pension funds to get in on the action. Cash generated from the IPO will go to Saudi Arabia’s sovereign wealth fund, which owns the majority stake of Aramco. Valuations of Aramco range from $1.2 trillion to $2.3 trillion.
The Sovereign Wealth Fund Institute estimates that the current assets of Saudi Arabia’s Public Investment Fund are valued at $320 billion. The fund is invested in US firms through its $100 billion SoftBank Vision Fund. One of the mandates of the 47-year-old fund is to help the Saudi economy transition to less oil dependency.
Some of the funds’ investments center on autos, whether gasoline-powered or not. In 2016, the fund poured $3.5 billion into Uber, and took a 5% stake and a seat on its board of directors, which was filled by Yasir al-Rumayyan, managing director of the fund. This week, it invested $400 million into former Uber CEO Travis Kalanick’s new company, CloudKitchens. In August, the fund invested $1 billion in Lucid Motors, an electric auto startup. Earlier this year, the fund purchased a $2 billion stake in Tesla and a $461 million stake in Magic Leap, an augmented reality startup.