My office is abuzz. People are buying Saudi Aramco shares, which it seems can be done on the local ATMs.
I am of the opinion that one should never put their own money in the show. These are the same people who were int bitcoin a few years ago.
That said, can an American hold Saudi shares in a normal portfolio? Once Upon a Time, one had to hold American Depository Receipts instead of share on an overseas exchange.
I am further concerned about how the heck an American in America would sell such shares when the time comes.
In addition to the wisdom of buying Saudi Aramco shares, are there any obvious legal or special tax implications?
The buzz is because it there was just another step towards finally having the much delayed Aramco IPO. They tentatively are looking at listing 1-2% on the local stock exchange in Saudi Arabia in December. Up to 5ish% total of the company will likely be sold in total. The rest will be listed on a major international exchange that is yet to be determined. The New York Stock Exchange is one possibility.
I’m not aware of any sanctions that would prohibit U.S. persons from investing in Aramco or Saudi Arabian companies in general. The U.S. is currently sanctioning 17 individuals in response to the Jamal Kashoggi killing, but those sanctions do not apply to Aramco.
Historically, it was hard for U.S. persons located in the U.S. to buy securities in foreign issuers because the offering had to be registered in the U.S. and, most likely, the broker offering the shares also had to register with the SEC. Few foreign issuers want to register in the U.S. but they may do so if they choose. ADRs are a workaround. They are investments in shares bought overseas and deposited into n a U.S. bank. You don’t actually buy the shares; instead you are buying the bank’s securities, which happen to represent the foreign securities on deposit ADRs are sold by U.S.-registered brokers.
I believe you are a U.S. citizen living overseas. If so, you can deal with a foreign securities broker subject to that country’s laws. That broker would not be required to register with the SEC based on that transaction. Similarly, since there is no offering to persons located in the U.S., the offering does not need to be registered with the U.S. As long as you are overseas, you should be able to buy Aramco securities like any other person.
If you want to sell the shares while you are overseas, same deal. No problem dealing with any local broker. If you return to the U.S., you can either sell them through a U.S. registered broker (which will sell them overseas, likely through a foreign broker) or you can sell them through a foreign broker as long as the broker did not solicit the transaction. That is, you must decide to sell the shares on your own and then contact the foreign broker.
Foreign brokers that carry accounts for U.S. citizens must also comply with the Foreign Account Tax Compliance Act. For that reason, some foreign brokers may not want to deal with you at all.
See this site for an explanation of American Depository Receipts. Bank of New York Mellon acts as a custodian for a large number of ADRs. I’m guessing shortly after Aramco lists on a foreign exchange BNY Mellon, or a similar institution, will list an Aramco ADR on a US exchange. Investors with access to US exchanges could then purchase the ADRs just like any other stock.
From what I understand, Saudi Aramco has a more profitable operation because they spend a lot less money trying to get oil out of the ground. That being said, it’s probably less clear if other aspects of their operations are transparent and efficient.
There are a variety of models for future oil revenues. All involve eventual replacement of most oil burning with cleaner alternatives, and a resulting crash in oil prices.
But in the next couple decades, there might be further price spikes north of $100 a barrel making it highly lucrative. Then again, fracking and the weakening of OPEC make these spikes unlikely.
So you are essentially investing in an asset you know will eventually depreciate to near zero, and it might throw off some future cash or it might not.
Also, Saudi Arabia might lie on their annual report or even nationalize your stake in it, making your shares worthless.
Basically I see a number of outcomes where the value goes to zero, a lot of outcomes where it goes sideways, a few where it goes up modestly. And no Amazon-style big winner outcomes. Oil is not going to go to $500 a barrel and you get rich. Saudi Aramco isn’t going to invent fusion power or AI.
But that “crash” may be after a very long run up in prices, which is what spurs on the development of oil replacements that later leads to the crash. There is plenty of oil in the world, and if we burn it all there will be worse problems than not enough oil, but what there is a relative shortage of is cheap oil. And the Saudis have the cheapest oil to extract, and lots of it. If the price spikes higher because of lower output of other cheap sources, the Saudi oil business will see a better return on capital invested than other sources that spend more to get it out of the ground.
Tired and Cranky pretty much nailed it. If you’re able to open a local investment account, you’ll be able to invest in shares through that account. Aramco was thinking about listing on the London Stock Exchange, so it gets a fair amount of coverage in the London business papers, and there were reports about it on Monday. If I recall correctly, they opened up a subscription period over the weekend and Saudi nationals, which I think includes residents, are able to subscribe to purchase shares via the main banks. So if you’ve got a local bank account, you’re probably good. If not, I’d speculate that the IPO would be too much hassle to bother with.
As for the wisdom of investing in Aramco, it’s certainly not going to be a growth stock. There’s some speculation it might be a good value investment for a couple of reasons. One, it may be undervalued. Neither oil nor Saudi Arabia are very popular at the moment, and oil prices are low. However, we’re talking about the most profitable company in the world, and oil prices are cyclical. The second is speculation about the dividend. It’s expected to be quite high, steady for the next few years, and could rise or have bonus dividends if the price of oil goes up. So it might be a good one to buy and hold for a few years. But certainly not risk free. One other note, check the currency for the local subscription. If it’s in SAR, then you’re also going to have FX risk is your main savings and investments are in USD.
“The Indicator” podcast from Planet Money did an episode on the failure of the Aramco IPO on November 22, 2019.
No major exchange accepted them. Going public means that you have to be transparent and Aramco was unwilling to open its books to the public. Selling shares on their own in Saudi Arabia was the best they could do.
If this wasn’t GQ, I might make a comment about the foolishness of owning stock in a company that refuses to provide the information needed for an investor to adequately analyze the investment. But it is, so I won’t.
My scan: The lackluster IPO hurts Saudi prestige - and they need the money. Because of Western disinterest in the IPO, the Saudi’s may move closer to Russia and China in order to proceed with MBS’s “modernization” program.
In short: if there’s a lot of talk and excitement about a stock around the water cooler or among your older relatives, then that’s definitely a stock to avoid.
One of the pitfalls of having a lot of money, even with a large cashflow, is that it’s easy to overspend it. Everyone gets the attitude that “we’re rich, we can buy anything we want” and no one puts the brakes on spending. For example, the same thing happened with the Spanish Empire when it was bringing in tons of gold and silver from the New World during the 16th and 17th centuries. It didn’t take long before the entire yearly treasure fleet was already spent well in advance of it reaching port in Spain.
There was some kind of crackdown on corruption earlier this year in Saudi Arabia. A number of high level people were detained for a while. Details are scant on it, but it’s thought that this was part of the same issue. Muhammad bin Salman probably got word that money was running out and concluded that some or all of these guys were stealing from the treasury. Maybe they were, maybe not.
I cannot speak to whether there are any rules specifically regarding that investment - but it’s certainly legal to own investments in foreign companies. We owned some shares in a Brazilian mining company for a while. There were a few things I had to fill out in TurboTax each year, including how much foreign tax was paid (I got a credit for it on our taxes).
Mine was purchased through Fidelity. As far as I know, there was no American Depository Receipt (whatever that is) involved. I have no idea how you’d liquidate such an investment as you describe; sounds like you believe it to be high risk, so selling it at all might be a problem, and the mechanism might be an issue as well (e.g. where would the funds be sent? to your US bank? To a foreign bank that complies with US overseas banking regs? something else?).
And of course there is the exchange rate risk, where something that is worth XXX of the local currency continues to be XXX in the local currency, but that equates to varying amounts in US depending on the rate.
When doing something like a security clearance, such an investment would need to be disclosed as well, I’m sure, lest it be perceived as your having a financial interest in a government that might not always be our best friend. A few dollars (riyals?) worth is unlikely to pose an issue there.
I’d say (and I have not read the rest of the thread, so I might be full of baloney) that if this is easy to purchase, and you might have fun watching the value go up and down, go for it in a small way with some spare cash that you can afford to lose.
