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Failed Aramco IPO Could Tank Saudi Diversification Agenda

If the initial public offering (IPO) of Saudi Aramco should fail to raise desired funds, the Kingdom’s planned economic diversification project would be unable to move forward as planned, according to a new report by BMI Research.

The report, compiled by a company owned by Fitch Ratings, said the IPO could be a “game changer,” but said that investors seemed lukewarm towards the historic listing.

“[The IPO serves as a] very public litmus tests over overseas investor confidence in Saudi Arabia,” the report read. “The success of the IPO will be crucial in determining the economic and political trajectory of the Kingdom over the coming decade. As a central tenet of Vision 2030, a successful public market listing would boost investor confidence; increase transparency in the equities arena; and fast-track the diversification process of the economy, while simultaneously bolstering Mohammed bin Salman’s political capital.”

The IPO is scheduled to take place in 2018, with listings on the domestic Tadawul exchange as well as one other stock market. Riyadh has yet to decide which foreign exchange will host the Aramco listing, but New York, London, Toronto, and Hong Kong all want in.

The Vision 2030 plan was announced a year ago, after two years of low oil prices had destroyed government revenues and caused massive holes in national budgets across Gulf countries. The KSA’s reliance on fossil fuel profits make it especially vulnerable to fluctuations in oil and commodities markets. Diversification needed to occur sooner, rather than later, if they are to continue funding the subsidies and welfare services to which Saudi citizens have become accustomed.

Related: The Oil Crisis: An Ice Cream-Flavored Asteroid?

Saudi Arabia will continue to have full control over the oil wells and production of Aramco even after the sale of public shares that total five percent of the company, Mohammed bin Salman said earlier this week.

The wells will still be owned by the government. The company only has the right to benefit from the wells. This is the same as before and there are no changes to that,” said the prince on state television, as quoted by Bloomberg.

By Zainab Calcuttawala for Oilprice.com

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  • John Scior on May 05 2017 said:
    Perhaps investors are leery of having their investment "nationalized" and being forced out much like CASOC/CALTEX.
  • Naomi on May 05 2017 said:
    Selling a share in the King's piggy bank is a woolly headed idea. What is the dividend? No growth prospects. No insurance. Unstable government. Poor management. 40 million welfare liabilities. Trust me he says.

    Better the King sell two year notes paying 5%. Establish a record of paying off. Move up to 5 year notes.

    Invest the sovereign wealth fund in manufacturing like Japan. Saudi Arabia needs a tire factory, a glass factory, a cement kiln, a fishing fleet, a railroad, a textile industry, a steel mill, an aluminum mill, a chemical industry...

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