Dollars and Jens
Friday, June 10, 2016
If you don't read Matt Levine, I don't understand why not; if you do, then you probably have some awareness of Saudi Arabia's build-up to doing an IPO on its massive state oil company, even if you haven't yet read today's column.
A $150 billion initial public offering would be by far the biggest ever; Bloomberg's league tables show about $176 billion in total global equity offerings so far in 2016. And if Saudi Arabia is selling oil shares, who is buying? "There is no guarantee there will be sufficient demand from investors to soak up all the shares," and messing this one up would be many times more embarrassing than messing up, say, the Facebook IPO.
Note that the $150 billion figure itself is only for 5% of the company; the expectation is that Saudi Arabia could retain a 95% share and get $150 billion for the rest of it.  The purpose of the funds is diversification; the plan is to take the $150 billion and turn around and invest it in like Baidu or niobium mines or Caterpillar or something.

I expect that the plan would also be to later sell more of the company, and I kind of wonder whether they picked 5% because $150 billion is the very largest initial deal they think could get pulled off.  I kind of think, though, that they ought to halve it, or maybe even go to 1% or something.  You really only need it to be large enough to create a liquid market in the shares, at which point you can sell more shares into that market later or even directly swap shares for other investments.  You want the initial float to be big enough that you can do those later deals (and maybe $30 billion would leave the market too thin to absorb what you're planning to do later), but it seems like trying to find that much cash among IPO investors when you're not really looking for cash so much as to create your own currency (viz. the shares with which you will purchase other investments) creates a difficulty that at least in principle could be avoided.

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