BEIJING/DUBAI – Two leading companies have grabbed headlines in 2019: Chinese telecoms giant Huawei found itself at the center of a major spat between the world’s two superpowers, while Saudi Arabia’s oil and gas business Aramco became the most valuable on the planet.
HUAWEI, THE TELECOMS GIANT CAUGHT IN THE US-CHINA TRADE WAR
When Meng Wanzhou, the chief financial officer of Huawei and elder daughter of the company’s founder, Ren Zhengfei, was arrested in Vancouver in late 2018, it placed China’s largest private firm at the center of a trade dispute between the world’s two largest economies.
Initiated by United States President Donald Trump in March 2018, the dispute has seen Washington and Beijing impose tit-for-tat tariffs on billions of dollars worth of each other’s goods.
Trump, who accused China of “cheating” the World Trade Organization since it joined in 2001, had said the measures were designed to reduce his country’s trade deficit.
The spat has naturally spilled over into global markets, increasing both financial and political uncertainty around the world.
American hostility towards China, and Huawei in particular, which has blocked its access to and use of US technology, has led the company to invest billions as it aims to reduce its dependence on services provided by Google.
Ren Zhengfei said this month that the company was mulling plans to shift its research center from the US to Canada, where his daughter is awaiting an extradition hearing.
Washington accuses Meng Wanzhou of breaking US sanctions on Iran, and could face extradition to the US. Her hearing is due at the end of January 2020.
China and Huawei insist that she is innocent, but she faces a maximum of 30 years if found guilty.
The Huawei heiress’ arrest and possible extradition is one of the most prominent aspects of the trade war that the world’s two superpowers have waged for the past year and a half.
But while bilateral trade disputes are not uncommon, it is highly unusual for a country as powerful as the US to essentially wage war on a company by blacklisting it, especially one as global and publicly recognizable as Huawei, one of the world’s leading manufacturers of mobile phones and tablets.
At the heart of the US’ concerns over the Chinese telecoms giant is its reported close ties to the Communist Party, the intelligence community and the armed forces, and the potential control that Chinese authorities can wield over the lives of Huawei users around the world, even subverting Western values through 5G mobile networks.
While the two parties reached a “phase one” partial agreement in December to mitigate the dispute that has had damaging effects on global markets and world trade, the future of Huawei and its CFO remains in legal limbo.
SAUDI ARAMCO: THE WORLD’S MOST VALUABLE COMPANY
After years of speculation, Saudi Aramco, the world’s largest energy company, made an Initial Public Offer (IPO) in December.
It became the world’s most valuable company, surpassing Apple Inc.
The long-awaited IPO was controversial due to the Kingdom’s role in ensuring its success by directly interfering to set the valuation, instead of allowing the market to decide the price.
Despite international investors’ valuations of over $1.5 trillion, the company was valued at $1.7 trillion, after which it rose even more, closer to $2 trillion.
The Aramco float was the Saudi Crown Prince Mohamed Bin Salman’s flagship idea, which analysts said was tied to his image and his legacy. The crown prince’s rise to global prominence and his Vision 2030 plan to reform the Saudi economy was the driving force of this IPO.
He first made the announcement in 2016, with an ambitious $100 billion IPO and a valuation of $2 trillion. The fact that Aramco’s value reached that mark after its IPO led to both international analysts and investors dismissing it as “inauthentic.”
The valuation of Aramco is based on a free float of 1.5 percent of the company’s shares.
Some believe that in the near future there will be potential conflict between Saudi oil policy and the imperative to protect Aramco’s share price. At a $2 trillion valuation, the dividend yield for investors is 3.75 percent only.
To ensure the success of the IPO, the Saudi government has ordered banks in the Kingdom to lend to Saudi nationals at a ratio of two to one for every riyal invested towards buying Aramco’s shares.
The government depended on friendly neighboring countries, UAE and Kuwait, in addition to wealthy Saudi families, to be able to raise the funds for the IPO after an international blackout. There will be further demands on Aramco’s shares as it joins the Tadawul index and global benchmarks such as MSCI.
Analysts say the company will reach out to investors about a possible listing in Asia in the future.
But despite the IPO, Aramco is facing challenges due to regional insecurity; the company faced a damaging drone and missile attack on some of its oil facilities in September this year.
Simultaneously the IPO occurred at a dynamic time for Gulf geopolitics. Saudi Arabia has faced a backlash over its human rights record and the war in Yemen, interference in Lebanon, and its strained relations with Qatar.
Despite its success, it is still unclear how an IPO depending on 1.5 percent of the company’s shares can create a diversified economy program.
It was previously announced that the money from the IPO will be reinvested by the Saudi Public Investment Fund in order to ensure growth in other sectors.
The listing is expected to bolster the country’s balance sheet.