First Published: 2017-10-23

Saudi Aramco chief confirms IPO despite doubts
Despite concerns over feasibility of plan to float five percent of state-owned oil giant, chief Nasser confirms IPO on track for second half of 2018.
Middle East Online

"The listing venue will be discussed and shared in due course," says Nasser

RIYADH - As questions swirl around the viability of Saudi Aramco's initial public offering, the oil giant's CEO has stepped in to confirm the IPO is on track for the second half of 2018.

The plan to float five percent of state-owned Aramco -- expected to be the world's largest stock sale -- forms the cornerstone of a reform programme envisaged by Crown Prince Mohammed bin Salman to wean the economy off its reliance on oil.

It could generate much-needed revenue after the country lost hundreds of billions of dollars since crude prices slumped in mid-2014, leading to huge budget deficits and withdrawals from strategic reserves.

Analysts, however, have voiced misgivings following recent media reports that the flotation could be shelved amid concerns over its feasibility in favour of a private stake sale.

Aramco's chief executive Amin Nasser on Monday shot down the reports and laid out a specific timeframe for the IPO.

"We have always said that we will be listing in 2018, and to be more specific, in the second half of 2018," Nasser said in an interview to CNBC television.

"The listing venue will be discussed and shared in due course," Nasser told the channel in Riyadh.

- Private stake sale? -

The IPO was announced with much fanfare last year when Prince Mohammed laid out his sweeping Vision 2030 plan to modernise the Saudi economy.

Investors salivated at the prospects of a share sale expected to generate $100 billion based on a $2 trillion valuation of the company.

The Aramco chief on Monday rejected reports that Saudi authorities were in talks with Chinese or other investors to sell a minority stake in the firm.

But analysts point out the practicality of a private placement of Aramco shares, which they say could give Saudi Arabia an immediate cash injection and more flexibility to consider various listing options.

"A private placement of a small stake in Aramco would solve a lot of headaches with the current efforts to list the company in global platforms," said Karen Young, a scholar at the Arab Gulf States Institute in Washington.

"The price can be more directly negotiated, and help its original motivation to relieve some fiscal pressure in the short term. A direct placement can also be closed quickly," Young said.

Saudi Arabia had laid out plans for a dual listing on the Saudi stock market and an international exchange for 2018, with markets in New York and London vying for the offering.

But the company has struggled to select an international venue for its listing.

"A private placement... could increase the likelihood of a delay in the IPO beyond 2018," said analysis firm Eurasia Group.

It added, however, that the move would offer Saudi Arabia the flexibility to list on an international exchange when oil prices perk up.

- Scrutiny of investors -

Unlike the IPO, a private sale would also spare the kingdom's leadership from the eagle-eyed scrutiny of global investors.

Investors have long debated whether Aramco could really be valued close to $2 trillion, as the Saudi leadership claims.

"Domestic politics in Saudi Arabia right now do not need a scandal" surrounding Aramco's finances, said Young.

For the IPO to succeed, Aramco's oil reserves would have to be independently verified and its internal finances reliably audited -- a kind of transparency that the company is unaccustomed to.

"Saudi Arabia will have to disclose a great deal of facts and figures that it has traditionally viewed as state secrets," said Hossein Askari, a professor of business and international studies at George Washington University.

While options exist for Aramco, the kingdom's crown jewel, it would be difficult to abandon the international IPO, which would be seen as a major setback for Prince Mohammed's reform plan.

"Aramco has many options, including a full international IPO, a smaller IPO on Tadawul (the domestic exchange) with possible later international IPOs, and the possibility of private sales mixed with one of the other options," said Ellen Wald, a fellow at the Washington-based Arabia Foundation and author of the book "Saudi Inc".

"Politically, it may be difficult to forego an IPO entirely at this point," Wald said

 

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