Speculation about Saudi Aramco’s planned stock flotation had become rife in recent months due to little visible movement by Riyadh on listing its most prized possession on a capital market.
News about the planned initial public offering (IPO) of Aramco by the local and international media, which was left stunned by the oil major’s announcement in January 2016 to go for a 5 per cent shares listing, had begun to dry up due to the lack of new developments. Whatever news was surfacing was mostly a product of assumption or guesswork based on precedents of mega IPOs, and nothing based on formal announcements by Aramco.
But the fact that Aramco is the world’s biggest enterprise, coupled with the opaque nature of Saudi socio-economic life, meant most of these suppositions were inaccurate. Details about even the most fundamental information related to share flotation – the financial worth of the company – remain murky, with Aramco valuing itself at about $2 trillion, while some global financial firms estimate the company to be less than $1 trillion based on certain international yardsticks.
What also caused a temporary drop in interest in the Aramco IPO was its fellow Gulf peer, Abu Dhabi National Oil Company (Adnoc), claiming the spotlight for itself. Despite making public its plan to float shares more than one and a half years after Aramco, the UAE state oil company completed its journey to privatise 10 per cent of its retail business in a span of a mere five months.
It can, however, be said in Aramco’s defence that its share sale process is going to be far more complex than Adnoc’s, given the sheer magnitude of its planned share sale and the impact it will have on the Saudi economy and the financial world alike.
If one were to go by Aramco’s self-evaluation, a 5 per cent stock listing could fetch the state energy giant $100bn, potentially making the IPO the biggest in financial history. The kingdom intends to allot the money raised to its investment vehicle, the Public Investment Fund (PIF), to wean the economy off its reliance on oil revenues – a prime objective of Riyadh’s ambitious Vision 2030.
The rumour mill even had it that Aramco may have shelved its plan to go to market, given the complications of executing it.
But the latest announcement by the government about the corporate restructuring of the oil company is a major positive development, and nearly seals the fact that the organisation is in the advanced stages of preparing for its stock market listing.
In a royal decree last week, Riyadh announced it had changed the status of Aramco to a joint-stock company as of 1 January, a requirement for local companies in Saudi Arabia ahead of stock flotations. This move has likely rekindled global investor confidence in Aramco, and also raises its status in the transparency and corporate governance indices, a key issue for potential shareholders.
Saudi ministers, government officials, and Crown Prince Mohammed bin Salman himself have along the way continued to assure investors that everything has been proceeding on track for the IPO, which will be launched according to schedule in the second quarter of 2018. It has also been confirmed that Aramco will be floating a portion of the planned 5 per cent IPO on the Saudi Stock Exchange (Tadawul), and will be looking at one or more overseas bourses for the remaining offering.
That is the other key daunting decision that Riyadh has to make regarding the listing – which stock exchange to choose so as to maximise yield and elevate its position in the global market.
Government leaders, along with their respective bourse chiefs, have been leaving no stone unturned to get Aramco to list on their markets – a contest that is as political as it is commercial. The New York and London capital markets are emerging as the frontrunners to win the IPO, with US President Donald Trump and UK Prime Minister Theresa May using their influence to lobby earnestly for their respective markets. Tokyo, Singapore, Hong Kong and Toronto are also in the race, although there are credible doubts about their chances.
Aramco has already formed a team of advisers, comprising banks and non-banking financial companies, to help it make risk-free and rewarding decisions in its privatisation exercise. It may well be that Riyadh will continue to let the suspense around the location linger for a while, in the hope of getting even more favourable propositions from foreign bourses and investors. But the oil giant has to note that suspense can give way to apathy from the global business community if the wait gets too long. The corporate restructuring is giving all the right signals; the leaders now need to build on the optimism.
We now know Aramco is definitely offering a slice of its enormous pie. It remains to be seen when and where.
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