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Will The Aramco IPO Spark A Crisis In Saudi Arabia?

Aramco will issue the prospectus for its initial public offering before this month’s end, the Wall Street Journal reported, citing people familiar with the preparations for the biggest IPO in history.

The Arabic version of the document that will promote the Saudi state energy giant among investors will come out on October 25, with the English version to follow two days later, on the 27th.

Next month, book-building will begin to test the waters for actual investor interest. Based on this, the company will either proceed with the listing—initially on the local Tadawul exchange—or postpone it.

In the meantime, Saudi expert Ellen R. Wald wrote for Forbes that the Aramco listing could create a headache for local regulators. There have been reports that a lot of regular Saudis will take on debt to buy shares in Aramco and, according to Wald, this might lead to a crisis of sorts, similar to the one that hit the Saudi economy in 2006, when lots of people borrowed to buy stocks listed on Tadawul, which caused their prices to balloon and then crash.

The preparations for the Aramco listing have been gathering speed lately. In September, the Saudi King Salman replaced Energy Minister Khalid al-Falih with his son Abdulaziz and also separated the Energy, Industry and Mining Ministry into two, with one dedicated singularly to energy. Falih also lost his position as chairman of Aramco, reportedly because he supported the idea of a later listing.

Also last month reports emerged that the government was pressuring wealthy Saudis into committing to buy shares in Aramco as a way of securing the so-called anchor investors in the company. There were also reports that Riyadh was considering doubling the stake to list to 10 percent.

Indeed, there was a reason to rush: prices were high and jumped higher after the attacks on a Saudi field and an oil processing facility. Now, they are on the slide again, with Brent below $60 and WTI close to $52 a barrel.

By Irina Slav for Oilprice.com

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