Is the Aramco IPO Dead?

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When Saudi Arabia confirmed in early 2016 that it was considering an initial public offering (IPO) of a slice of the country’s national oil company, the excitement among investment bankers was palpable. The Saudi Arabian Oil Company, better known as Aramco, claims about 261 billion barrels of proved crude oil reserves worth around $8 trillion at the then-current crude price of around $30 a barrel. At $70 a barrel, the value rises to more than $18 trillion.

A proposed IPO of 5% of the company would value the publicly traded slice at more than $900 billion at today’s prices and leapfrog Aramco to a position as the most valuable publicly traded company in the world.

A report on Thursday in The Wall Street Journal now suggests that the proposed IPO may be unraveling. The original plan called for the IPO to occur last year on a major exchange with a second listing on Saudi Arabia’s own Tadawul exchange. The soonest an IPO could happen now is sometime next year, and even that timetable is vague.

As a private company, Aramco reveals very little about its reserves, its operations or its finances. If it were to trade publicly in New York or London or Hong Kong, the company would have to divulge far more information than it ever has about its business. That is not something that many government officials want to happen.

Instead, some have suggested, Aramco should offer just a tiny bit of stock on the Tadawul. It would have to be tiny since the exchange’s value is barely more than $500 billion.

The kingdom has also had good luck issuing bonds. An offer in April attracted $52 billion in orders for $11 billion offered in tranches of 7, 1, and 31 years. The government also plans to issue domestic bonds valued at up to 70 billion riyals (about $18.7 billion). The riyal is pegged at 3.75 to the dollar. Beginning with the first sale in 2016, the Saudis have sold four international bonds valued at a total of around $60 billion.

With oil prices now more than double what they were when Crown Prince Mohammed bin Sultan proposed the IPO, the kingdom’s finances are in much better shape, and the prince’s goal of diversifying the Saudi economy may be achievable without giving up the crown jewel, so to speak.

The Wall Street Journal report notes that Saudi officials have carefully avoided discussing how difficult the IPO process has become in order to avoid fouling relationships with banks and other advisers already frustrated with the delays. All have taken minimal fees with the expectation of a big payday when the IPO is completed. The excitement dissipated months ago, and now that a listing on a major exchange may be out the window, bankers’ anticipation is no better than lukewarm.