Days before a widely expected official approval for what would be the world’s largest initial public offering (IPO) ever, Saudi Arabia delayed, yet again, the much-hyped listing of its oil giant Aramco by at least several weeks, with international investors not really buying the Saudi insistence that the biggest oil company in the world is worth US$2 trillion.
Over the past two months, Aramco has noticeably accelerated the timeline for the much-hyped listing. The US$2-trillion valuation that the Saudis seek has been one of the sticking points - together with the international venue for the listing and concerns over transparency of Saudi reserves – that has led to several delays already.
At a meeting to endorse the IPO last week, the banks Aramco has hired for the listing made clear that foreign investors are not rushing to invest in the Saudi state oil company at a valuation of US$2 trillion, Bloomberg reports, citing people with knowledge of the issue. According to one of those sources, the valuation should be closer to US$1.5 trillion if Aramco wants to stir real interest among international investors.
The Saudis, Crown Prince Mohammed bin Salman in particular, seem to insist that US$2 trillion is a fair valuation for Aramco.
But bankers don’t think so.
A key sticking point in the current talks about the listing is that Saudi officials believe that Aramco should trade at a premium compared to large international oil companies, such as Exxon and Shell, a money manager who had held talks with Aramco told Bloomberg. Related: There’s Tremendous Room For Growth In Offshore Oil & Gas
Investors, however, point out the risks of investing in the state oil firm of the Kingdom, where production levels, governance, and management will continue to be controlled by Saudi Arabia. With Aramco potentially listing just 5 percent on the stock market, all major decisions at the company will remain in the hands of OPEC’s largest producer and de facto leader.
According to Bloomberg, the Crown Prince now has two options ahead. One is to drop US$500 billion from his valuation of Aramco. The other is to raise the money from wealthy Saudi families or from the sovereign wealth fund.
By Tsvetana Paraskova for Oilprice.com
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However, would-be-investors wouldn’t buy this evaluation without an internationally independent audit of Saudi reserves, something Saudi Arabia will never submit to.
I am on record having been for years sceptical about Saudi declared oil reserves of 266 bb. My latest research and calculations based on Saudi oil production since oil was discovered in 1938 (for which we have figures) and an annual depletion rate of 5%-7% indicate that current Saudi proven reserves could not exceed 55 bb. That gives an estimated valuation of Aramco ranging from $750 bn to $1 trillion at most.
Still, this debate has become academic as the original Saudi Aramco Initial Public Offering (IPO) will never see the light of day because of persistent question marks about Saudi proven oil reserves and risk of US litigation in relation to 9/11. It is buried and dead.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London