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Cyril Widdershoven

Cyril Widdershoven

Dr. Cyril Widdershoven is a long-time observer of the global energy market. Presently, he holds several advisory positions with international think tanks in the Middle…

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Why Aramco Delayed Its IPO


The long-awaited Saudi Aramco IPO, scheduled for mid-2018, could be delayed to 2019.

International news reports have stated that the Saudi government is currently putting together contingency plans for a possible delay to the biggest IPO ever. The listing of 5 percent of Saudi Arabia’s crown jewel, the world’s largest oil company Saudi Aramco, could bring in around $300-$400 billion, based on a valuation of Aramco at between $1.5-2 trillion.

The cash generated by the IPO has already been earmarked for the coffers of the Saudi Public Investment Fund (PIF), to be used as financial support for Saudi Vision 2030, the economic diversification program proposed and pushed for by Crown Prince Mohammed Bin Salman (MBS).

Doubts about the valuation have been strong, but a success story for this particular once-in-a-lifetime IPO is all but guaranteed. International interest is growing and media reports are stumbling over each other to assess, criticize or support the IPO strategy. Presently, international advisors and banks have already been appointed, but no decision (officially) has yet been made on where Aramco will be listed. New York, London, Frankfurt and Hong Kong are leading the race, but no white smoke has plumed from the chimney of the Saudi Royal Palace.

Some analysts view the possible IPO delay as a sign of the problems Aramco and the Saudi government currently face. A lack of transparency, issues with its oil and gas reserves, and the role of the Saudi government as the main stakeholder have all been suggested as the reason for this possible delay. Most of these suggestions, however, are based purely on issues surrounding the IPO itself. The true reason for this delay, however, likely hides among the intricate societal and economic problems in the Kingdom.

Related: Is Russia Pushing Saudi Arabia Out Of Asia?

One obvious reason for a delay is the still-fledgling global oil price. A higher price setting—above $60 per barrel—would surely drive up the overall interest in the IPO. As long as OPEC and non-OPEC members, such as Russia, are still struggling to get a grip on the oil market, the potential for disaster looms. Needless to say, an oil price slump would have a detrimental effect on the expected revenues of the IPO.

The analysts, it seems, feel no need to look any further than this simple oil price explanation, but several other key factors should be addressed…

The impact of an influx of $1-2 trillion into the current Saudi economy is bound to have a significant impact. The implementation of Saudi Vision 2030 is broad and ambitiously planned. A full diversification of the economy is needed to guarantee work and salaries for future young Saudis, with the end of government subsidies or handouts.

A multitrillion investment scheme in a rather small local economy will likely result in total disorder, inflation and possibly ineffective investment schemes. The attractiveness of investing the total amount could lead to staggering inflation, higher costs and superfluous projects being realized. 

A delay of such an influx of cash seems to be more and more attractive, giving the Saudi government and local industries more time to adjust and put in place the right steps for a sustainable and commercially attractive economic future.

The crown prince’s future, and that of his supporters, also depends on the whole endeavor. A fully-fledged economic revival and restructuring could threaten power brokers and religious entities in the Kingdom. MBS has appeared to misunderstand the significance of these issues, but is currently stepping up to remove some of the apparent hurdles. His current policy to remove hardline fundamentalist religious leaders (partly under the name of Muslim Brotherhood allegiances) is a step he needs to take to control the opposition and solidify his own position.

At the same time, MBS’ future will also be decided soon, as rumors are growing of an upcoming abdication of the throne by King Salman. For MBS, as the new heir, stability is needed to prepare for this unprecedented move. Internal security is put in place, which could be impacted by the Aramco IPO not going according to plan. Opposition groups will take the opportunity to protest against his new status under the umbrella of an unsuccessful sale of the key company, while also dealing with Iranian tensions. A delay of the IPO could be a sign that for MBS, stability and the future of House of Salman has taken precedent over the Aramco IPO.

Related: “Super Critical” Coal Shortage Sends India Scrambling For NatGas

Taking this all into account, delaying the Aramco IPO until 2019 could be an astute move. The enormous task that the Saudi government has established under the umbrella of Saudi Vision 2030 will be incredibly difficult to achieve. Last week’s statements about an extension of the National Transformation Program (NT), the basis of Vision 2030, was the first sign of this.

Change is always difficult, but Saudi Arabia faces a daunting task. An implementation slowdown is needed in order to reduce the risk to the Saudi government. Aramco’s attractiveness is undebatable, and will be there, whatever happens. The future of the Kingdom of Oil however, is at risk if this transition is not carefully controlled.

Without MBS as captain of the Vision 2030, there will be no Vision 2030.

By Cyril Widdershoven for Oilprice.com

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  • Naomi on September 15 2017 said:
    Aramco is worthless without a dividend guarantee mechanism. Saudi Arabia has no rule of law.
  • Jeffrey J. Brown on September 15 2017 said:
    Posted on another thread:

    An interesting article in the WSJ, about the Saudi Crown Prince's continuing efforts to consolidate his power:

    WSJ: Saudi Arabia Clamps Down as Crown Prince Consolidates Power
    Prince Mohammed is expected to accede to the throne held by his father, King Salman

    And an excerpt from the 2012 book "On Saudi Arabia" follows that I always cite:


    "What scares many royals and most ordinary Saudis is that the succession, which historically has passed from brother to brother, soon will have to jump to a new generation of princes. That could mean that only one branch of this family of some seven thousand princes will have power, a prescription for potential conflict as thirty-four of the thirty-five surviving lines of the founder’s family could find themselves disenfranchised."

    And my comment:

    Using a estimation methodology that was too optimistic for post-1995 CNE (Cumulative Net Exports) for the Six Country Case History*, I estimated that post-2005 Saudi CNE would be about 60 Gb, with 31 Gb having been shipped from 2006 to 2016 inclusive.

    If we divide estimated post-2005 Saudi CNE at the end of 2005 by 2005 Saudi population and estimated remaining post-2005 CNE at the end of 2016 by 2016 population, estimated post-2005 Saudi CNE at the end of 2005 were 2,400 BO per capita and remaining estimated post-2005 CNE at the end of 2016 were 900 BO per capita.

    For the sake of argument, if we assume that the Saudis sell their remaining CNE for about $75 per barrel, they would generate about $70,000 per capita from selling their remaining estimated total volume of CNE.

    *Major net oil exporters, excluding China, the hit or approached zero net oil exports from 1980 to 2010
  • DavidKlaus on September 15 2017 said:
    Saudi ARAMCO is riddled with serious risks and as someone has said it also suffers from the hold up problem on dividends. Whatever happens, Saudis cannot be trusted with how they will change policies and play around with retained earnings to reduce dividends for investors after the IPO. The Saudi rulers do not have any religious legitimacy over the holy mosques as they are not descendants of Prophet Mohammed. The political and religious legitimacy is provided by the religious leaders who could turn their followers against the ruling family. In a country where channels for political dissent do not exist, it is not hard to imagine how the majority of the ultra-orthodox population will react. The potential of a Riyal Dollar Unpeg, the major risks inherent in Saudi Arabia make this IPO one of the riskiest in the world.
  • ryan on September 15 2017 said:
    You might want to check your math, 5% of 1.5-2 trillion is $75B-$100B
  • RK on September 15 2017 said:
    The real reason maybe that their reserves are far below what they claim and would be shown up. Data from the A.A.P.G. Library in Houston on the 1046 Giant Oil and Gas Fields of the World show that at February the 58 producing oil fields of Saudi Arabia had 32.866 billion barrels of oil left. This would be down to around 31 billion now with recent production. What should concern everyone is that all the other Middle East oil producers are showing similar reductions. Iran and Ira and down in the low 30 billions as well.
  • Bonaventure Stephen Gomes on September 16 2017 said:
    Historically, Saudi Aramco (then Aramco), from drilling a hole in the wall to drilling a hole on the ground, all operations are outsourced to contractors and leading oil service companies where expatriates abound. Saudi Aramco has a large cash pool (however, dwindling) to pay its contractors. In event of an IPO, Saudi Aramco could be sued for its corrupt practices of discriminatory payrolls where American take the cheese, and the Asians get the chalk. Nepotism pervades this company where pedigree matters, and degrees are perfunctory. Saudi Aramco treats its Asian employees very shabbily, while the Saudi Arab-led Executive Management takes the cream, offering a pittance to its employees (Asians, and even Arabs). Shias rarely make it to the management cadres. For its IPO, it depends heavily on a cluster of consultant companies including, but not limited to bankers, lawyers, and advisory firms) as the Company has absolutely no in-house wherewithal. A large portion of its employees and dependents are deprived of full benefits as access to recreation facilities. South African apartheid-era practices are in full display within Saudi Aramco. All benefits accrue to the Americans (who rake in the mullah despite lack of proper credentials), and the Saudi executives place themselves in winners take it all.

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