The Misadventures of Mumtalakat

This weekend the CEO of Mumtalakat, Mr. Mahmoud Kooheji, attended the annual St Petersberg Economic Forum in Russia. Quoting his interview with Reuters:

“Everyone globally has his eyes (on Aramco) and the mind boggles when they talk of the Aramco IPO and the size of the IPO,” Mumtalakat Chief Executive Mahmood Alkooheji said in an interview late on Wednesday in St Petersburg.

Asked whether Mumtalakat was interested in participating, Alkooheji said: “Everyone in the whole globe will be interested. Let’s hope we can play a small part in the IPO.”

Why on earth would Mumtalakat even suggest they participate in the Aramco IPO? Here are three reasons why they shouldn’t participate.

1. Bahrain’s state budget for 2016 lists Oil & Gas Revenue at BHD 1.883bn. As a percentage of total revenue (BHD 2.178bn), that equates to a colossal 86%. Even if the Aramco IPO ends up making sense as a standalone investment, with 86% of government revenues coming from hydrocarbons it doesn’t make sense to further expose one’s self to oil. New investments should be diversifiers to their current income stream.
2. Mumtalakat had a tough first decade of existence and it should be making investments that either preserve capital, generate stable inflation-beating income or strategic, holding potential to create multiplier effects in the local economy. A $100mn investment for example would equate to a mere 1.4% position for Mumtalakat. Putting that same amount of capital into SMEs or local technology startups would have potential to do a lot more for the country.
3. The Saudi government doesn’t need a relatively tiny ($7bn in net assets) Mumtalakat to participate, and in the grand scheme of things a token ticket is irrelevant to the Saudis seeing as they, along with other GCC states have provided Bahrain fiscal support.

Bahrain should hope Kooheji’s threat to participate in Aramco’s IPO remains just the trendy sound bite it is today. There are better investments out there.