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Is Aramco’s IPO Under Threat?

Oil rig middle east

"Everyone is almost certain it (IPO) is not going to happen," a senior Aramco executive told the Wall Street Journal yesterday, confirming already existing doubts about the deal that all see as maker or breaker of the Vision 2030 economic reform program spearheaded by Crown Prince Mohammed.

Preparations for the listing have stalled, apparently, and some in the Saudi government are beginning to doubt it will ever take place. This is the opposite of what officials have been saying publicly: that preparations are going well and that the IPO is on track to take place some time in the first quarter of 2019.

The original schedule was for the listing to be done by the end of this year, but it turned out preparations will take longer. Besides, oil prices were lower than Aramco’s management would have liked, and that too contributed to the decision to delay the IPO.

There are skeptics that believe it will never happen. Initially touted as the biggest IPO in history, the Aramco listing was to be twofold—a listing at home on Tadawul, and abroad, in New York, London, or Hong Kong. However, problems with these locations have emerged since then.

New York has become an unlikely listing destination because of post-9/11 legislation allowing U.S. citizens to sue Saudi citizens for the tragedy. London, which has been particularly active in promoting itself as the best listing destination, has failed as of yet to win a commitment from Riyadh, as has Hong Kong.

Related: Trump Is Fracturing OPEC

Last year, reports emerged that Aramco may sell 5 percent directly to institutional investors, including Chinese ones, but nothing substantial followed.

The latest, listing Aramco only on Tadawul, seems like a last-resort idea. The Saudi exchange is way too small to bear the weight of a company as large as Aramco even if its actual value is much lower than the estimated US$2 trillion. This latest information supports suspicions that the biggest IPO in history may be facing insurmountable difficulties.

By Irina Slav for Oilprice.com

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  • Bonaventure Stephen Gomes on July 07 2018 said:
    Evidently, Saudi Aramco was bombarded with advice from a battery of leading law firms, bankers, and consulting firms. These so-called experts offer you limited options. You need fresh and young minds as they offer out-of-the-box suggestions. It is like the 2018 FIFA World Cup Russia where the mighty have fallen including, but not limited to, Germany, Spain, Brazil, Argentine, and Uruguay. Many more did not qualify as Netherlands, and Italy. The bright spots were Japan, Senegal, Nigeria, and South Korea. Perceptions of the old guard must change. Saudi Aramco must get out of its cocoon by coddling these so-called experts, develop their own in-house think-tank team, have a strategy, and take the risks. Fortune favors the brave. With oil prices climbing up, complacency has set in. Oil still rules. Saudi Arabia, and Saudi Aramco does not need an IPO. Investments will come in surely to the Kingdom of Saudi Arabia as it modernizes its economy.
  • Mamdouh G Salameh on July 06 2018 said:
    I am on record having been saying for the last seven months that Saudi Arabia will quietly withdraw the IPO of Saudi Aramco altogether.

    My misgivings were based on two major factors: Risk of American litigation and doubts about the actual size of Saudi proven oil reserves.

    Saudi investments in the United States could be at risk by the legislation passed overwhelmingly by the US Senate and the US House of Representatives in 2016 that would allow families of September 11 victims to sue the Saudi government for damages. The law allows the removal of the sovereign immunity, preventing lawsuits against countries whose citizens were found to be involved in the attacks. The minute one law case is launched by an American citizen against the Saudi government, all Saudi assets in the US will be frozen. Even if the law was not used against Saudi Arabia, it will give the American government a powerful tool to blackmail the Saudis politically and financially for years to come.

    The other factor is that the IPO was valued by the Saudis at $100 bn based on their claim that they have proven reserves of 266.2 billion barrels (bb). Wall Street and many financial houses valued the IPO at far less probably $50 bn. However, no investors will even consider buying any shares of the IPO without independent auditing of Saudi reserves. Many experts including my own research estimate the remaining Saudi proven reserves at 58-70 bb.

    For these reasons, I have been saying that the IPO will be withdrawn from the market altogether.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London

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