The rumor mills were awash over the past few weeks that the Aramco IPO was either going to be cancelled or postponed. Anonymous sources also stated that the Chinese would buy the whole planned five percent of the planned IPO in a private placement, or that the IPO would be split between the Chinese and the Saudi stock market listing of Aramco. The Saudi oil giant repeatedly issued statements that the IPO was on track for 2018 and that all options were being considered as to an international venue for listing along with the Saudi Stock Exchange. Even the Saudi Energy Minister and Aramco Chairman Khalid Al Falih tried to put the rumors of cancellation or postponement to rest when he categorically stated that Aramco is still aiming to complete procedures required for its planned dual listing on the Saudi stock market and an international exchange next year. “It is on track” said the Oil Minister in London at the annual Oil and Money Conference without answering questions about rumored Chinese interest.
This is natural, given that Aramco still has to complete its extensive analysis on the most appropriate international listing venue to take into consideration the regulatory, accounting auditing formats, legal and financial attractiveness of the stock markets concerned. It is no secret that China has been the major source of increased energy demand and the Chinese market offers great opportunities for oil exporters like Saudi Arabia to extend their market share in both the crude and refined downstream sectors.
The news that Saudi Arabia is considering to diversify the sources of its international borrowing by tapping the Chinese Yuan market and also look into the possibility of accepting convertible Yuan for its oil exports to China makes a listing in Hong Kong an attractive proposition. London and New York are also vying to list the Aramco IPO, but each offers both advantages as well as possible regulatory and legal obstacles.
On the defensive
The constant rumors and denials about the IPO’s fate has brought starkly into focus one important aspect, namely that Aramco seems to be always on the defensive and reactive to media reports, instead of being proactive and taking the initiative. A post- IPO Aramco will have to pay very close attention to external public relations and media management and the same applies to a pre-IPO Aramco. To this end, Aramco had appointed several international media companies with the U.S. based FTI Consulting appointed to support Aramco’s communication team ahead of the sale, as well as the UK’s Brunswick Group. The plan was to have FTI focus on investor relations and Brunswick to run external and media communications, with the aim that Aramco could manage the release of critical financial and public relations progress reports to potential outside investors as well as to the general public. External transparency would be elevated by the use of such media experts.
The fact that Aramco and its Chairman had to intervene and issue denial statements to the rumors which were casting doubt on the IPO process was something that could not continue and it has come as no surprise that Aramco has decided to suspend FTI as an advisor to the IPO. These events have been a wakeup call to Aramco to adopt a more pro-active media management approach given the global interest in the planned IPO and reduce uncertainty. Too much has been invested in the planned partial privatization to be abandoned or postponed, as it is central to the success of the Kingdom’s Vision 2030 program, whereby the funds generated by the IPO would help the Saudi economy start on its long road of economic and social changes. The success of one depends on the other, and while more rumors and denials will be faced along the way, in the final analysis the planned IPO is definitely on track but we have to wait a little bit longer to find out the final outcome and location. As Aramco has repeatedly kept stating, all options are on the table.
Dr. Mohamed Ramady is an energy economist and geo political expert on the GCC and former Professor at King Fahd University of Petroleum and Minerals, Dhahran , Saudi Arabia. His latest book is on ‘Saudi Aramco 2030: Post IPO challenges.'