Saudi Aramco's IPO

Saudi Arabia is attempting to diversify its economy so that it becomes less reliant on oil. Part of the plan includes an initial public offering (IPO) of Saudi Aramco, the world’s largest oil company, valued at between about USD 8 billion and USD 10 billion.  It’s hoping to get more than that when the oil company goes public, reportedly about USD 2 trillion. But will this be achieved?

It appears that Saudi Arabia, and Saudi Aramco in particular, is scaling back its plans for diversification. It seems that it may not happen to the extent originally intended by 2020.

This article by Reuters explains more.

Unveiling pragmatism

 Saudi Arabia may water down plans to overhaul the economy and reduce its dependence on crude exports by 2020. If these much-vaunted reforms can be delayed, so can a tricky initial public offering of national oil-producing giant Aramco that is unlikely to deliver the desired $100 billion windfall.

The National Transformation Program that Crown Prince Mohammed bin Salman unveiled in June 2016 is proving a little too ambitious and may be revised, the Financial Times reported on Thursday. The scheme aimed to almost triple non-oil revenue to 530 billion riyals ($141 billion) by the end of the decade, boost private sector employment, and sell off a bunch of state-owned assets. A rethink would reveal a pragmatic vein in the prince that might have implications for his other brainchild, the partial privatisation of Aramco.

Selling a stake in Riyadh’s most-prized asset is proving to be as financially problematic as it is politically sensitive for Mohammed bin Salman, who could soon succeed his ageing father King Salman bin Abdulaziz. If oil prices stay below $55 per barrel this year and next, as analysts polled by Reuters expect, Aramco is unlikely to be valued at around the $2 trillion mark, as the crown prince originally suggested.

Saudi has tried to make the offering more attractive, including by lowering the taxes and royalties that the company has to pay. It has, however, yet to win over sceptics who worry more about governance issues such as transparency and the kingdom’s reticence to disclose its energy reserves. And unless oil prices climb back above $84 a barrel, the level at which the kingdom balances its budget, there may be limited scope to sweeten the deal much more.

The IPO of a cherished national titan is already dividing public opinion in a kingdom unused to dramatic social and economic changes. Delaying it may be less embarrassing than trying to explain why the kingdom failed to sell the stake for as much as anticipated. True, that might be embarrassing for Saudi’s future king to explain internationally. But it would boost his standing at home. With one eye on the throne he may favour the latter.