Is The Aramco IPO On The Brink Of Collapse?

Tyler Durden's picture

Authored by Nick Cunningham via OilPrice.com,

In what could be a humiliating decision, Saudi Aramco is considering not staging an IPO next year as planned, due to the difficulty of pulling off an international listing.

On Friday, the Financial Times reported that Aramco is weighing a different strategy: selling stakes in the company to private investors and sovereign wealth funds. No final decision has been made yet, but there are several potential paths forward, including a public listing on Saudi Arabia’s domestic stock exchange plus a private sale. Or a private sale followed by an international listing, but maybe not until 2019.

Aramco officials tried to beat back the report, insisting that everything is moving forward as planned. “A range of options, for the public listing of Saudi Aramco, continue to be held under active review. No decision has been made and the IPO process remains on track,” Saudi Aramco said in a statement, according to the FT.

However, Reuters echoed the FT, reporting on Friday that Aramco was in talks with a Chinese investor.

Saudi officials, according to the FT, are concerned about the legal risks involved in taking the company public. The powerful crown prince has favored a New York listing, due to the political alliance with the U.S., while some Aramco officials and financial advisors prefer a less risky listing in London. A New York listing could expose Aramco to legal action stemming from Saudi Arabia’s alleged role in the 9/11 attacks—legislation passed by the U.S. Congress in late 2016 authorizes lawsuits from 9/11 victims against Saudi Arabia.

But a London listing is apparently not that much more attractive. Saudi sources told the FT that Aramco would face tough legal scrutiny there as well.

Those roadblocks have led to second thoughts on the IPO altogether, with Saudi officials reportedly now considering a private sale.

After hyping the IPO for more than a year, shelving the plans would amount to a significant climb down for the state-owned oil company.

On the other hand, as Bloomberg Gadfly points out, there are also upsides to a private sale that go beyond the difficulties of listing in New York or London. For instance, if Aramco attracts a disappointingly low sale figure, that figure could remain undisclosed if the sale was private. Also, Saudi Arabia could deepen its ties to Asia if it makes a private sale to major investors in China or India. Finally, Aramco would not have to publish estimates on its oil reserves – a long held state secret.

In addition, Saudi Arabia might have troubles engaging in coordinated production cuts within OPEC if it listed in New York, a practice that might be considered price fixing, and thus illegal.

But, even with all of that said, scrapping the IPO would amount to a defeat. It would also raise deeper questions about the country’s finances and its long-term fiscal health. The IPO has been billed as the largest ever public offering, with Saudi officials boasting that Aramco is worth some $2 trillion, which would translate into around $100 billion for 5 percent of the company. Independent analysts dispute those figures, estimating the company could be worth maybe only half of that.

While the precise figure is up for debate, few doubt it will be large, playing a crucial role in the country’s plan to diversify the economy. Saudi Arabia’s National Transformation Program (NTP) consists of a series of economic reforms aimed at accelerating growth, cutting spending on wasteful subsidies, while also raising tax revenue from non-oil sources. There is a bit more urgency to stimulate the economy because of Saudi Arabia’s sizable budget deficit and the fact that the economy entered a recession this year, in part because of the government’s own austerity measures.

The IPO of Aramco is considered a pivotal move that could address a lot of these problems all at once.  But Saudi officials have been hoping to time an IPO with oil prices trading at least as high as $60 per barrel. However, rebalancing the oil market and lifting prices has taken much longer than expected. In that context, it is no surprise that the Saudi King made his first visit to Russia earlier this month, desperate to make the OPEC deal work, not only for higher oil prices in the near-term, but to set the state for the country’s highly-anticipated IPO.

A decision not to take Aramco public would be a major setback.

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LawsofPhysics's picture

All to extract the remaining oil resources from the people of the middle east...

...oh well. get it over with already, maybe then they will have peace.

serotonindumptruck's picture

The inevitable collapse of the Petrodollar gains momentum.

Two-bits's picture

What about the Petroblockchainruble? 

The king did just visit Moscow.

Antifaschistische's picture

EXACTLY...oil is so, so, yesterday.  Only old cooters care about oil.  the future is crypto fuels.

El Oregonian's picture

Was that the Petrodollar or was it the pedodollar?

gregga777's picture

The only problem is that petroleum underlies the production and manufacturing of everything in the industrialized and not so industrialized world. Without oil we're back to an 18th Century civilization with a > 7 billion 21st Century population.

Horse Pizzle's picture

Saudi Arabia is investing in Russia.  Yet they invite you to invest in Saudi Arabia.    What's wrong with this picture? 

serotonindumptruck's picture

You might be on to something highly relevant.

Those ridiculous sanctions against Russia must must have some regulators and MIC contractors worried.

KSA recently finalized a deal for delivery of the S-400 missile system from Russia.

We certainly live in interesting times.

researchfix's picture

The Russians weapons show and demonstrations in Syria sure created a fat order book. And, as we all know, that demands for a skinny order book elsewhere.

assistedliving's picture

DOA.  Won't happen.  Private placement.  Mostly China.

researchfix's picture

But...but...London...NewYork...the fees...

insanelysane's picture

This is the issue with the IPO:

Saudi Arabia sells stock in their oil company.

A few years some prince or king decides to take the company private with a share price of 0.

What are you going to do about it?

Antifaschistische's picture

that is why it is more valuable to the Chinese or the Russians.   They will move in their military to make sure that NEVER happens.

researchfix's picture

"A few years some prince or king decides to take the company private with a share price of 0.

What are you going to do about it?"

Unprince him?

Ink Pusher's picture

Beijing is going to buy it. 

Expat's picture

Saudis have money problems and thought an IPO was a sweet way to get a cash injection.  Then prices crashed and it doesn't look so great.  They also learned that selling shares means both sharing profits and information, things they really did not understand when they initiated the process.  Aramco is a not a market player; they have little sense or need to be commercial.  This was a first step (along with creating a trading division) which simply is a step too far.

NubianSundance's picture

Anyone paying big bucks for a stake is going to do due diligence on the oil reserves Saudi still has after decades of industrial scale extraction. Will be interesting to see if China pulls out later or pays a much lower price than expected.

TheCrusher1825's picture

I'll tell you why they are having delays.

For the first time in their lives, they've got to be transparent.

It won't happen.

paint it red call it hell's picture

Bagholders wanted - aramco IPO

Evan Wilson's picture

I don't think the muppets have that kind of money after getting clean out on some of the more recent unicorns to go public.

 

oncemore's picture

A decision not to take Aramco public would be a major setback....
A major setback?
For whom?
It will be a good day for people loving freedom.

Russia sent US home from Syria.
Excellent military ops, I do want to know, how many "US military advisors" have been killed in the command centers and bunkers blown up by kalibr missiles. It was not against camell riders. The statements, that it was Al kaida comand center, it was just the pretext to bomb the place, in reality they have been hunting down CIA nazis.

China will send US home from SA.