Aramco is considering the offer of not 5 but 10 percent of its stock in the much-hyped initial public offering that has been delayed several times already.
The Wall Street Journal reports, citing sources in the know, that the Saudi royal court has been discussing the idea with the advisers on the deal, expected to be the largest in history. If Aramco floats 10 percent, this could fetch $200 billion that will be used to fund Crown Prince Mohammed’s ambitious economic transformation plans.
The $200 billion in potential proceeds from the offering of 10 percent of Aramco, however, are based on a valuation of $2 trillion for the whole company—a number that some experts have questioned.
Investors are also questioning the value of the Saudi energy giant in the wake of attacks on its infrastructure that slashed production. Despite the world-class assets and the fact that Aramco pumped just below 10 million bpd before the attacks—or more than the world’s top four listed oil companies combined—financial analysts and investors told Bloomberg last week that the valuation of the company may not fully account for major supply disruptions like the current one.
What’s more, the attacks have once again delayed the listing. In early September, Aramco’s chief executive Amin Nasser said the company was ready to list on the Saudi exchange, Tadawul, this year.
“It is going to be the primary listing, to list locally, but we are ready also for listing outside in other jurisdictions,” Nasser told media.
After the attacks, however, there has been talk of a delay of Aramco’s primary listing to 2020. The attacks appear to have seriously shaken investors’ trust in the company and reports that repairs could take months rather than the few weeks that Riyadh said it will need to return to normal production have not helped.
At the same time, The Financial Times reported Riyadh is using somewhat unconventional methods to secure anchor investors for the offering from the local billionaires that the government targeted in a so-called anti-corruption probe last year.
By Irina Slav for Oilprice.com
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Investors are shying away from the IPO because they question its valuation and they are also very doubtful of the Saudi-claimed reserves. While the Saudis are claiming 266 billion barrels (bb) of proven reserves, my latest research shows that Saudi proven reserves couldn’t exceed 55 bb.
Moreover, listing Saudi Aramco on the Saudi exchange, Tadawul, would overwhelm it causing a serious liquidity problem and prove impractical.
Still, Saudi Aramco may opt instead to issue a smaller petrochemical IPO since investors could see petrochemical assets like refineries and plants but can’t be sure about reserves without a truly independent audit.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London