The on-again, off-again, never-in-doubt, will-never-happen IPO of Saudi Arabia's state-owned oil company Aramco is back on... for 2021, according to prince Mohammad bin Salman.
In a broad-based interview with a number of Bloomberg reporters on Wednesday night at a royal compound in Riyadh, Saudi Arabia’s Crown Prince Mohammed bin Salman Al Saud spoke about his relationship with Donald Trump, his commitment to IPO Aramco, plans to invest a further $45 billion in Softbank, energy markets and the recent arrests in the kingdom.
As Bloomberg reports, Prince Mohammed, surrounded by a handful of advisers, said the IPO was "100 percent" in the nation’s interest.
"Everyone heard about the rumors of Saudi Arabia canceling the IPO of Aramco, delaying that, and that this is delaying Vision 2030," he said. "This is not right."
Prince Mohammed said the IPO’s delay had its origin in mid-2017, when it became clear that Aramco needed a push into petrochemicals. He said it would had been unfair to go ahead with the listing only to surprise investors soon after with a big deal in chemicals.
The most recent statements on when the IPO would happen provided considerable room for maneuver. Energy Minister Khalid Al-Falih said in August that Saudi Arabia would go ahead with the project "at a time of its own choosing when conditions are optimum."
Prince Mohammed has now given the company and its advisers a new deadline, requiring the completion of the Sabic and acquisition and a giant international share sale in less than three years. Management and bankers will take some solace from the fact they’ve already made many of the preparations needed for an IPO, but it remains a daunting agenda.
Bloomberg: Now the other big deal, because we have to talk about the other big deal that I know my colleagues are very interested in is Aramco’s negotiation for Sabic, taking the share. Do you have a sense of how that’s going to be structured, how that’s going to go?
MBS: Everyone heard about the rumors of Saudi Arabia canceling the IPO of Aramco, delaying that, and that this is delaying Vision 2030. This is not right. Actually, in mid-2017, we had an issue, which was: What’s the future of Aramco?
So Aramco today, it produces oil, and it has a few downstream projects. But if we want to have a really strong future for Aramco after 20, 30, 40 years from today, Aramco has to invest a lot in downstream because we know that the new demand for oil 20 years from now, it will be from petrochemicals. If we see the rising demand from petrochemicals, I believe it’s growing about 2-3 percent today. So definitely the future of Aramco has to be in downstream and Aramco has to invest in downstream.
So when Aramco does that, it will have a huge conflict with Sabic, because Sabic is about petrochemicals and downstream. And the main source of oil for Sabic is from Aramco. So if Aramco does follow that strategy, Sabic will definitely suffer. So before we do that, we have to have some sort of agreement to be sure that Aramco benefits from Sabic and Sabic doesn’t suffer in that process. So we’ve reached a point that PIF will sell the 70 percent that it owns in Sabic to Aramco and Aramco will do the other jobs of merging -- or whatever they will do with Sabic -- to have one huge mega company in that area in Saudi Arabia and around the world.
Of course, the money coming from that deal will go to PIF, but we cannot IPO Aramco directly after that deal, because you need at least one full financial year before that IPO. So we believe that deal will happen in 2019, so you need the whole 2020 –
Bloomberg: Is that early ‘19?
MBS: It will be somewhere in mid ’19, more or less. You’re talking about $100 billion of deals, so it’s huge.
Bloomberg: So you know what the structure is going to be, roughly?
MBS: This is really complicated, I’m not sure about the details yet. We will come to it.
So the deal in 2019, one financial year in 2020 and then immediately Aramcowill be IPOed. We’ve tried to push to IPO it as soon as possible, but this is the timing, based on the situation that we have.
This will not harm the plans of Vision 2030 because PIF will still be funded from the deal of Sabic in 2019 with around $70 billion to $80 billion if I’m not mistaken, and in late 2020, early 2021, it will also have $100 billion from IPOing Aramco. So there is in the pipeline of the cash flow to PIF, $70 billion -- $70 billion to $80 billion -- then $100 billion, so we are talking about $170 to $180 billion. So PIF is good, the economic plans in Saudi Arabia is good, and that deal is good for the downstream industry in Saudi Arabia.
We will produce, we believe, more than 3 million barrels of petrochemicals in 2030, most of it in Saudi Arabia, part of it outside of Saudi Arabia, and that will be done by Aramco and Sabic and this will create huge opportunities for economic growth and jobs.
Bloomberg: Can you see why people thought that there was a connection between the two? They say oh, the IPO has been delayed, and now we have this deal we didn’t know about before? Was it not possible to do the IPO before the Sabic deal?
MBS: I believe it would be really a waste of the whole image of Aramco. You cannot do the IPO of Aramco and then give the shareholders a surprise a year later with a new deal that wasn’t on the road map then. So it has to be clear. It has to be clear IPO, clear strategy. So that’s why we have to do that before.
Why that story happened, because we believe that there was some leak about the Sabic deal before we did the PR campaign to announce it officially in Saudi Arabia. So when that leak happened, it goes the wrong way. But today I’m trying to say what the right picture is.
Bloomberg: So you still think the IPO is absolutely in the nation’s interest?
MBS: Of course, 100 percent.
Bloomberg: 2020, 2021?
MBS: I believe late 2020, early 2021.
Bloomberg: Will you do full 5 percent, because you’re saying $100 billion?
Bloomberg: And you’re still on the valuation that’s $2 trillion, even though there’s a lot of skepticism about that?
MBS: We will see. So the investor will decide the price on the day.
Bloomberg: So does that mean, it can be $2 trillion, it can be based on market?
MBS: I believe it will be $2 trillion, above $2 trillion.
Additionally, bin Salman had some comments for President Trump and Obama...
Bloomberg: Trump said you would last two weeks only without the U.S.
MBS: Saudi Arabia was there before the United States of America. It’s there since 1744, I believe more than 30 years before the United States of America.
And I believe, and I’m sorry if anyone misunderstands that, but I believe President Obama, in his eight years, he worked against many of our agenda – not in Saudi Arabia, but also in the Middle East. And even though the US worked against our agenda we were able to protect our interests. And the end result is that we succeeded, and the United States of America under the leadership of President Obama failed, for example in Egypt.
So Saudi Arabia needs something like around 2,000 years to maybe face some dangers. So I believe this is not accurate.
Bloomberg: So if President Trump is doing other things that you want, you don’t mind him saying these incredibly rude things about your father?
MBS: Well, you know, you have to accept that any friend will say good things and bad things. So you cannot have 100 percent friends saying good things about you, even in your family. You will have some misunderstandings. So we put that in that category.
Bloomberg: So we know, U.S.-Saudi relations are just as good now as they were 24 hours ago before the President said these things?
MBS: Yes of course. If you look at the picture overall, you have 99 percent of good things and one bad issue.
Bloomberg: With President Trump it seems to be a little bit more than one percent.
MBS: One percent. I love working with him. I really like working with him and we have achieved a lot in the Middle East, especially against extremism, extremist ideologies, terrorism and Da’esh [Arabic acronym for ISIS] disappeared in a very short time in Iraq and Syria, and a lot of extremist narratives have been demolished in the past two years, so this is a strong initiative. We worked together also, together with more than 50 countries, to agree on one goal in the Middle East and most of those countries are going through with that strategy. Now we are pushing back against extremists and terrorists and Iran’s negative moves in the Middle East in a good way. We have huge investments between both countries. We have good improvement in our trade – a lot of achievements, so this is really great.
Seems like that may explain President Trump having nicer things to say about the Saudis last night.