Tuesday 05, June 2018 by Jessica Combes

Saudi Aramco restructures non-oil assets ahead of IPO

 

Saudi Aramco has created a subsidiary to house its multibillion-dollar pension fund and could spin off its aviation division

The decision comes as the company restructures some assets not related to oil and gas ahead of its planned initial public offering (IPO), sources said.

The move is designed to streamline Aramco’s operations and could make it easier to value since its business risk would be clearer and that may help it achieve a higher price for its shares, financial and industry sources told Reuters.

The listing of Aramco, which is likely to happen next year, is the centrepiece of the Government’s ambitious Vision 2030 plan to diversify the kingdom’s economy beyond oil.

Crown Prince Mohammed has said he expects the IPO to value Aramco at a minimum of $2 trillion, meaning a sale of five per cent could raise $100 billion to help fund Vision 2030 projects. Analysts have valued Aramco at $1 trillion to $1.5 trillion.

Saudi Aramco has previously been tasked with carrying out government projects that have social goals and are too big or daunting for the private sector, such as building industrial cities, stadiums and cultural centers. The world’s largest oil exporter also has its own schools, housing, airline fleet and hospitals that are used by its roughly 55,000 employees as well as their families, according to Reuters.

However, potential investors in what is expected to the biggest IPO in history may not want exposure to such a complicated array of assets that would not be as profitable as Aramco’s core oil business, financial sources said.

Aramco created a new subsidiary—called Wisayah—for its in-house multibillion-dollar retirement fund management unit about six months ago, and it is run by a small team of financial professionals in Dhahran, where Aramco’s headquarters is based, one of the sources said.

Sources have suggested that aside from the pension fund, Aramco could spin off some non-oil units such as its aviation division, by either forming a joint venture to manage it or bringing in an outside company to operate the fleet. Currently Aramco Aviation operates about 10 jets such as Boeing 737s and Embraer 170s, as well as helicopters that transfer employees and visitors to oil and refining plants across Saudi Arabia.

Aramco previously formed a joint venture with US construction firm Jacobs Engineering Group last year to take on the project management of Government infrastructure and other projects not related to oil, as part of its IPO preparations.

Another joint venture that falls outside the traditional scope of an oil company is Aramco’s Johns Hopkins Aramco Healthcare Company JV created in 2013 with the U.S. hospital to provide medical care for Aramco employees and their families, Reuters said.

One source said the joint venture may open up to the public and not just serve the company’s employees.

Aramco has often defended taking on projects outside its core oil and gas business as part of its corporate social responsibility for the community. But it’s been argued that Aramco’s involvement in ventures such as the Al-Jawhara football stadium in Jeddah or managing floodwater drainage there has prompted criticism internally that its manpower is not being used effectively.

The state-owned oil giant declined to comment on the pension fund move or plans for its aviation division, said Reuters.

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