Sector News

Saudi Arabia is delaying and scaling back its plans for an international IPO of Saudi Aramco in the face of potentially major problems with disclosure, valuation, and litigation risks.

According to The Wall Street Journal, citing government sources and others close to the process, Saudi officials are now leaning toward listing the state-owned oil giant on the Tadawul Stock Exchange in Riyadh, while taking more time to decide if a broader international listing would make sense. The IPO, for which the London, New York, and Hong Kong stock exchanges have been competing for, was expected to be the centerpiece of Saudi Crown Prince Mohammed bin Salman’s Vision 2030 transformation program.

Prince Mohammed, currently on a trip to the United States, has become resigned to the idea that the legal risks of a US listing could be insurmountable, The Wall Street Journal says. Lawyers have warned Saudi officials that US legislation could allow Aramco to be sued by families of victims of the 9/11 attacks in New York in 2001. The company could also be subject to class-action lawsuits by investors for failure to comply with US regulations on disclosure of reserves and other data required from oil companies. London listing requirements could also mandate greater disclosure than Saudi Arabia would prefer, analysts say. However, a supplementary listing in Hong Kong, coupled with Chinese state-owned companies buying a strategic stake in Aramco in return for long-term oil supply agreements, is still a possibility, they note.

Valuation also remains a deterrent. Prince Mohamed originally estimated that floating 5% of Aramco on international exchanges would raise $100 billion and value the entire company at $2 trillion. Analysts say that it has become clear that this figure is unrealistic and even the $75 billion (hence $1.5 trillion value of the whole company) cited recently as the most likely IPO proceeds may be ambitious, absent a further major recovery in the oil price beyond the current $63/bbl. But a range of $60–80/bbl, capped by rising US shale oil production, through to at least 2020 seems to be in the cards, they say.

According to The Wall Street Journal, Saudi officials say that rising oil prices has eased pressure on the kingdom’s finances and bought them more time to determine whether an international IPO of Aramco remains a good idea. The prince first floated the idea of an IPO in early 2016, when oil prices had fallen at one point to below $30/bbl. Analysts say, however, that there may be a face-saving element in this argument since the International Monetary Fund estimates that the kingdom still needs an oil price of around $70/bbl to balance its budget, even though a raft of domestic tax increases—including the first-time imposition of value-added tax on a wide range of goods and taxes on expatriates’ salaries—will add to government income.

Khalid al-Falih, Saudi Arabia’s oil minister, told CNN this month that the Tadawul will be the key listing location. “An Aramco listing on the Tadawul will be catalytic for that capital market,” he said. The Wall Street Journal says, however, that even a Tadawul listing could present problems for Aramco and the exchange itself, as it is a small venue and it is unclear whether the internal controls and technology could support large-scale trading that would come with listing a company as big as Aramco. The domestic listing is unlikely to happen by October 2018, a deadline set last year. Officials and people close to the process say April 2019 is likely the soonest a local IPO could proceed.

By Natasha Alperowicz

Source: Chemical Week