Saudi Arabia anti-corruption sweep: How will surprise probe affect Aramco IPO?

saudi arabia crown prince

Saudi Arabia’s government spearheaded a surprise anti-corruption sweep over the weekend, arresting Prince al-Waleed bin Talal and dozens of current and former ministers, a move that could destabilize the Kingdom’s market ahead of the highly-anticipated Saudi Aramco IPO.

“Any time a government [makes] an unexpected policy [decision] it causes markets to be jittery when it’s something that comprehensive,” Amy Myers Jaffe, David M. Rubenstein senior fellow for energy and the environment at the Center on Foreign Relations, told FOX Business. “[The campaign was] so swift and so bold that it didn’t really give markets a chance to adjust to the concept and therefore it now sets a context against which the IPO and all other [economically-oriented] things in Saudi Arabia will be judged in terms of risk versus no-risk.”

Saudi Arabia’s King Salman installed his son Mohammed bin Salman as crown prince and heir apparent in June, a surprise restructuring of power, replacing the King’s nephew Prince Mohammed bin Nayef and stripping him of all his posts. The change was viewed as a shock, but the new Crown Prince has been instrumental in pushing the Aramco IPO forward, in addition to implementing social and economic reforms. He also heads the anti-corruption body responsible for the recent arrests.

Myers Jaffe said she was “surprised by the comprehensive ambition” of the anti-corruption campaign, which included the arrests of at least 11 princes and some of the richest people in the country – and the world. While the Crown Prince had been clear that he was going to take steps toward eliminating domestic corruption, the nature of this unexpected probe was seen as a means for him to solidify his power and send a clear signal.

Even if the government in Saudi Arabia has changed its mind “nimbly” on a number of topics, ranging from oil prices to other economic policies, the Kingdom has been clear and consistent about its intention of carrying out the Aramco IPO and achieving its Vision 2030 economic goals, Myers Jaffe said.

“I think the really open question is not so much can they pick a good strategy, how will they woo investors and so forth,” she said. “The question is can [the IPO] actually be successful?”

She added that Aramco will be the first-state owned oil company to go public at a time when there’s an abundance of oil as opposed to a scarcity, which could influence investors’ willingness to buy in.

The Aramco IPO could attract a $2 trillion valuation and could potentially be the world’s largest. The Kingdom is expecting to raise $100 billion to invest in companies around the world. The idea is that revenue generated from these investments can be used to sustain its budget even when oil prices, or supply, are low, in order to reduce its dependency on energy.

As previously reported by FOX Business, President Donald Trump suggested over the weekend that Saudi Arabia consider listing Aramco on the New York Stock Exchange.