Saudi Aramco IPO: Back on track

The recent spate of so-called exclusive news and counter news that the planned Aramco IPO was cancelled, then put on permanent hold had confused the market, as the Aramco IPO had been touted as being one of the centerpieces of the ongoing Saudi Arabian economic Transformation Vision 2030 agenda.

The recent in-depth interview by Crown Prince Mohammed bin Salman with Bloomberg has put these rumors to rest. In a nutshell – the Aramco IPO is back on track, but not as previously expected during 2018 or even 2019, but most likely in 2020 or early 2021.

The reasons given by the Crown Prince make sense and are in line with those observers who were skeptical about the cancellation or permanent delay of the IPO. The reason for the rumors was the announced plan by Aramco a few months ago of their intention to purchase the government’s stake in SABIC, or the Saudi Arabian Basic Industries Company, the mega-petrochemical giant with operations in both the Kingdom and overseas.

The government’s stake is held by the Public Investment Fund (PIF) – the Saudi Sovereign Wealth entity – which is also a key agent of the transformation of the Saudi economy through its ongoing and planned domestic, and high profile international investment portfolio that includes Tesla and Uber, as well as investments with Softbank in the technology sectors.

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The SABIC stake is valued at around $70 billion and Aramco plans to leverage its low debt balance sheet and borrow this amount internationally to conclude the purchase sometimes during 2019.

The Crown Prince alluded to the Aramco purchase of SABIC share as the prime reason for the delay in the Aramco IPO and the reasons given were again rational. It takes time, appropriate legal and financial due diligence to conclude such a mega transaction with other legal opinions sought in jurisdictions where SABIC has international operations so as to ensure that no local anti-trust laws are broken.

The intention, according to the Crown Prince, is that after an appropriate time, the Aramco IPO would definitely be carried out along the same original guidelines – a five percent flotation in the domestic bourse and an international venue, with the expected valuation expected to be two trillion dollars or more.

Audited accounts

The reason for the expected IPO date of 2020 or early 2021 is that a full year of audited accounts and performance is required following the Aramco purchase of the SABIC share, and that the combined petrochemical synergy and consolidation of the Saudi downstream energy sector would be the main driver of the higher expected valuation, as experts had cast some doubt that the higher two trillion dollar valuation estimates could be achieved based on an Aramco IPO alone.

The in-depth interview noted that a potential international listing venue was still open but would still be dependent on legal, market financial depth and other factors to be taken into account by the company and its advisors.

The final outcome is the same – the PIF would receive the proceeds of both the SABIC sale and the expected Aramco IPO, amounting to 180-180 billion dollars or more. The interview touched upon the PIF’s investment strategy with focus on domestic investment going forward from a current equal split for domestic – international investment.

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Concerning Aramco, according to another recent interview by its CEO Amin Nasser, the company has completed its IPO due diligence, a new board of directors has been appointed, financial and oil reserve due diligence carried out, and Aramco is now focusing on concluding the SABIC purchase.

He categorically refuted the rumors of an IPO cancellation or permanent delay and reiterated that the final go-ahead for the IPO was a sovereign decision. This is now confirmed by the Crown Prince, who also advised that, following an Aramco IPO, the company would continue to be in the hands of the Saudi government and not transferred to the PIF as had been noted earlier in 2016.

Given the different corporate objectives and management mandates of the PIF and Aramco, this clarification is welcomed. The in-depth and wide-ranging interview and answers given by the Crown Prince are a refreshing change. While the Aramco IPO issue will not be in the limelight for the next few years, the IPO will take place and is not dead.
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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 and co author of ‘OPEC in a Post Shale world – where to next ?’. His latest book is on ‘Saudi Aramco 2030: Post IPO challenges’.