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20 October 2019

Saudi Aramco delays planned initial public offering

The Kingdom seemed determined to press on with an accelerated schedule even in the face of potential headwinds such as weak oil prices, a slowing world economy and last month’s attack on the company’s biggest processing plant.

Simon Dawson/BLOOMBERG

Saudi Aramco’s stop-start initial public offering (IPO) has been delayed again just days before a planned launch as doubts re-emerged about the $2 trillion valuation placed on the state oil giant by Crown Prince Mohammed bin Salman, reportedBloomberg.

The postponement, by at least a few weeks, will allow the array of Wall Street bankers advising the state-owned oil company to incorporate third-quarter results into their pre-IPO assessments of the company. The banks are still struggling to meet the valuation the company is seeking.

Saudi Aramco, which pumps about 10 per cent of the world’s crude oil, stated that the timing of the IPO will depend on market conditions and that it continues to engage with shareholders on activities related to the listing.

The sudden delay disrupts the carefully choreographed plan to launch the share sale on 20 Oct 2019, followed a week later by intense promotion during the country’s big investment forum—dubbed Davos in the Desert—and ending with an IPO in late November.

Last year, Aramco delayed the IPO after more than two years of preparations as international investors baulked at the Crown Prince’s $2 trillion valuation.

This time Saudi Arabia opted for an easier route, deciding to start with a local listing only in Riyadh—ditching plans for a sale in London or New York—and enlisting local banks and wealthy families to support the IPO.

While details of the proposed offer have not been made public, people involved in the transaction said earlier this month that about two per cent of Saudi Aramco might be sold, raising $40 billion and easily exceeding the $25 billion raised in 2014 by Chinese e-commerce giant Alibaba Group Holding.

Ever since the Crown Prince first mooted the IPO of the Kingdom’s most prized assets in early 2016, the company’s valuation has been contentious. Many analysts have said that $2 trillion is too much compared with similar publicly traded companies.

Saudi Aramco may well be the world’s most valuable company but based on the dividend yield received by investors in Exxon Mobil, the largest US oil company, its valuation would be closer to $1.5 trillion.

The 14 September 2019, attack on its oil facilities disrupted output and sent shock waves through energy markets, triggering the biggest one-day jump in Brent crude prices on record and stoking security concerns. Investors are already demanding a premium to hold the country’s debt, downgraded this month by Fitch Ratings.

While advisers had been working on announcing an intention to float for 20 October 2019, executives hadn’t given a firm timeline in public. Last month, Amin Nasser, Saudi Aramco Chief Executive Officer said that the IPO would happen “very soon”.

The IPO promises to be a fees bonanza for the more than two dozen advisers working on the share sale, with Saudi Aramco set to pay them $350 million to $450 million.






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