By Davide Barbuscia
DUBAI (Reuters) – Mark Mobius has “governance” concerns over investing in shares or bonds that could be issued by Saudi Aramco in future because of Riyadh’s control over the oil giant, the emerging markets investor said on Monday.
“At the end of the day decisions about the company will not necessarily be for the benefit of the larger shareholders but for the government,” Mobius told Reuters on the sidelines of an investment conference in Dubai.
Saudi Aramco is expected to issue its first international bond over the next few months with the proceeds likely to be linked to the acquisition of a controlling stake in petrochemical maker SABIC.
Mobius said he would not invest in Aramco’s bonds unless the risk-reward ratio is balanced by high interest rates, which would have to be higher than what Saudi Arabia offers.
“Because at the end of the day if there is a dissolution in one way or another the Aramco bond would be the first to go, the first to be sacrificed (before the sovereign)” he said.
Saudi Aramco pulled its planned $100 billion initial public offering (IPO) last year, partly because of concern on disclosure requirements, sources familiar with the decision said. The planned IPO is at the heart of Saudi Arabia’s push to reform its economy and diversify its revenues from oil.
But Saudi energy minister Khalid al-Falih said in January a listing would happen by 2021.
“MAJOR GOVERNANCE ISSUE”
Mobius, a pioneer of emerging market investing, left Franklin Templeton last year after more than 30 years and started his own London-based Mobius Capital Partners, which aims to buy direct equity stakes rather than exchange-traded funds.
But he said he would not invest in an Aramco IPO, which could become the largest ever, and would not consider buying its debt unless offered “very, very attractive” rates.
“If something happens where Saudi Arabia is in trouble for one reason or another and they need the money, they (Aramco) will need to transfer assets to the government,” Mobius said.
“You have a major governance issue,” he said, adding that the only way he would invest in Aramco would be if “the government picks up a minority shareholding and we have a truly independent board of directors.”
Saudi Arabia, together with other Gulf states, has been included in JP Morgan’s emerging-market government bond indexes, a move fund managers have estimated will generate $30 billion to $40 billion in inflows into Gulf debt by September this year.
Mobius said it was “smart” of Saudi Arabia to issue Aramco’s bonds now. “The Saudis if they play it smart, they’ll make sure to get into the index, they will be able to get it off.”
Speaking more broadly, Mobius said his main concerns as an investor looking at Saudi Arabia were political stability within the country and oil prices.
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