Is Aramco attempting a virtual stock listing?

26 July 2018
Saudi Aramco will indirectly achieve part of its privatisation plans if it takes control of Tadawul-listed Sabic

Saudi Aramco's plan to acquire the majority stake in Sabic from the Public Investment Fund (PIF), is a move that will amount to the Saudi energy giant entering the Riyadh stock market through the backdoor.

The kingdom’s sovereign wealth fund PIF is the 70 per cent stakeholder in the Saudi Basic Industries Corporation (Sabic), with the remaining 30 per cent traded on the Saudi Stock Exchange (Tadawul).

Should Aramco become the majority owner of Sabic by purchasing all of the PIF’s stake in the company, it will be adding to its burgeoning downstream portfolio a prized, stock-listed company, a move which in effect will lead to a virtual debut of Aramco on the Tadawul.

Several versions explaining the purported reasons behind Aramco’s interest in buying Sabic have been doing the rounds, prime among those being of the Saudi oil behemoth delaying its planned initial public offering (IPO) even further.

Listing Aramco on an international stock exchange, the size and repute of New York, London or Hong Kong, poses immense challenges and complications for the kingdom – suggesting that the Riyadh leadership and the company’s management may have pushed the plan back for now, and are instead focussing on a successful launch of the company’s shares on the Riyadh exchange.

The real purpose

By investing in Sabic, Aramco will also have gained a presence on the Tadawul. That will fulfil Riyadh’s strategic goal of raising funds for the PIF to sponsor its ambitious infrastructure and social development schemes. That ultimately is Saudi Vision 2030 architect Crown Prince Mohammed bin Salman’s real objective, making the 5 per cent IPO of Aramco he proposed in January 2016 the centerpiece of his reform agenda.

Taking into account its tens of domestic and foreign subsidiaries, Sabic has a market capitalisation of $104bn, meaning selling its entire stake to Aramco can help the PIF raise above $70bn.

That would have been roughly the same amount that Aramco would have garnered from its 5 per cent stock flotation at home and overseas bourses, had it stuck to its original plan to IPO in the second half of 2018, as international auditors and investors have estimated Aramco to be worth around $1tn, realistically correcting the $2tn valuation desired by Riyadh.

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