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Japanese Investors Likely To Snub Saudi Aramco’s IPO

Refinery

Japanese firms will probably stay away from the world’s biggest initial public offering (IPO) ever as they are concerned about the valuation of Saudi Aramco and its lack of transparency, the president of the largest Japanese oil refiner said on Friday.  

Saudi Arabia’s oil firm Aramco is an important crude oil supplier to Japan, holding more than a third of Japanese imports.

Yet, Japanese investors are unlikely to jump into the listing of the Saudi oil giant because they have to explain to their shareholders why they consider investing in Aramco’s IPO a good idea, Tsutomu Sugimori, president at Japan’s largest refiner JXTG Holdings, said at an earnings call.

“We don’t know about Aramco’s crude oil reserves and how their contracts with the Saudi royal family work and so on. Aramco will need to disclose this information, but it is not clear how open Aramco will become,” Reuters quoted Sugimori as saying.

Japanese investors will probably steer clear of Aramco’s IPO despite the fact that Saudi Arabia holds a significant share of Japan’s crude oil imports.

Saudi Arabia held a 44-percent share of Japanese crude oil imports between November 2018 and April 2019, according to IHS Markit. This share, however, is expected to have declined to 35 percent over the past six months, including October 2019. 

While Japan is snubbing Aramco’s IPO, another big Asian buyer of Saudi crude, China, could be the one to invest in the listing and help ensure it is a success.

Earlier this week, Bloomberg reported that various Chinese state-held companies and funds are negotiating possibly investing up to US$10 billion in Aramco’s initial public offering.   

The Saudis are seeking as high a valuation for Aramco as possible, but they may have to concede that Crown Prince Mohammed bin Salman’s target valuation of US$2 trillion is simply not achievable, as bankers have repeatedly said, and accept a valuation of US$1.6 trillion-US$1.8 trillion to ensure that the much-hyped much-delayed IPO will be a success.

By Tsvetana Paraskova for Oilprice.com

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  • Mamdouh Salameh on November 08 2019 said:
    Without transparency and an international and independent audit of Saudi Arabia’s proven oil reserves, neither Japan or China nor other would-be-investors would consider investing in Saudi Aramco IPO.

    When would-be-investors talk about the high valuation of Saudi Aramco and also about transparency, they are in effect questioning the size of Saudi proven oil reserves on which the Aramco valuation is based. Saudi Arabia will never submit to an international and independent audit of its reserves and therein lies the problem.

    That is why I have been saying that the international Aramco IPO will never see the light of day. It is dead and buried.

    Even a listing of Saudi Aramco on the Saudi stock market (Tadawul) may not fare better because it could overwhelm the local stock market and create a problem of liquidity and possible cases of bankruptcy in the market with local investors trying to borrow huge amounts of funds to pay for Aramco’s shares.

    Still, Saudi Arabia can still go ahead with the implementation of its Saudi Vision 2030 without the IPO. Ending the war with Yemen will save an estimated $72 bn annually while phasing out the financial subsidies for gasoline, diesel, water and electricity could save another $100 bn annually giving a combined total of $170 bn thus obviating the need for the IPO.

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

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