Aramco: An oil company en route to an IPO

It is expected to be the biggest IPO in history but when and where it will take place remain closely guarded secrets.  One thing is for certain, the chances of Saudi Aramco going public in the second half of 2018, as originally planned, look less likely by the day.
During the week-long visit to London by Crown Prince Mohammed bin Salman earlier this month, the Saudi delegation held a series of briefings with their British counterparts.  The Financial Times, citing those in the British delegation, reported that the timeline had slipped to 2019.
After being deluged with requests for an updated position, Saudi Aramco put out a statement after the London trip and said it continues to review options for the listing, adding that “appropriate decisions will be made in due course.”
But to build confidence for the world’s biggest IPO and the broader reforms under the Vision 2030 plan launched nearly two years ago, energy strategists suggest that the Kingdom should move to provide some clarity.
“I think they need to set a date and stick to it,” said Robin Mills, CEO of Qamar Energy based in the UAE.
Recent history suggests that the clock might be running out for 2018 taking in consideration compliance issues, a multi-city roadshow to financial capitals and Ramadan, which from May 17 will consume a month just before the quieter summer months.
“If a decision is not made by April, then the IPO would more certainly slip until 2019 because of all the planning and lead time needed,”  said an expert on the IPO process.
Back in 2004, Google took eight months to go public and raise $4 billion. Perhaps a better international gauge is Alibaba, the Chinese e-commerce company.  It took a full year to list in New York after protracted and unsuccessful discussions in Hong Kong.
Alibaba went out on the New York Stock Exchange for $21 billion; Saudi Aramco hopes to raise nearly five times that amount for 5 percent of the group.
Like in real estate, location matters and there seems to be a level of internal debate about what is best for Aramco and therefore the Kingdom of Saudi Arabia, which sits on the world’s largest proven reserves at just over 260 billion barrels.

Alibaba went out on the New York Stock Exchange for $21 billion; Saudi Aramco hopes to raise nearly five times that amount for 5 percent of the group.

John Defterios

In an interview with CNNMoney, Khalid Al-Falih, the minister of energy, industry and minerals, rang global alarm bells when he mentioned two key concerns about listing on Wall Street.
“I would not say legislation but litigation and liability are the concerns for us,” he said.  “We have seen five IOCs (international oil companies) being sued for frivolous climate change allegations.  Quite frankly Saudi Aramco is too big and too important for the Kingdom to be subjected to that kind of risk,” he added.
Al-Falih was referring to a lawsuit filed by New York City back in January, but energy analysts said there are also lingering concerns for Aramco around the so-called JASTA legislation, which would lift immunity against a sovereign state and open the door to legal action by the families of those killed during 9/11 attacks.
So, I asked the minister Al-Falih if that means London moves into the pole position as the international market.
“The London Stock Exchange is one of the best in the world. It is well-regulated and respected, it has a great many companies, including in the oil and gas sector, that are listed here, national oil companies as well as IOCs,” said Al-Falih.  But he was quick to clarify there has been no decision made and New York remains in the running. 
The Kingdom has the leverage to alter the mix of its offering.  Hong Kong has been mentioned more often as a market destination, which is closer to Aramco’s key customers for crude:  China, South Korea, Japan and India.  It can also raise the private placement of equity with sovereign funds in Russia and China.
But Al-Falih did say in our interview that financial depth of a market remains an important factor for the brain trust in Riyadh.  With a market capitalization of $19 trillion, New York is three times the size of London and five times the size of Hong Kong.  
I have been told by those internally at Aramco, that the Crown Prince prefers New York since his plans to build the world’s biggest sovereign fund will hinge on investments from Silicon Valley to Wall Street. 
The Kingdom is also eager to obtain a final clearance in June from the MSCI as a fully-fledged emerging market, which Saudi officials describe as “catalytic” for their capital markets.
While the government is hoping for a $2 trillion valuation when it goes public, Mills of Qamar Energy and the energy consultancy Wood Mackenzie have run their numbers and place it in a range of $1.3-$1.4 trillion dollars, which would still dwarf the world’s largest publicly traded energy company Exxon Mobil now trading with a value of around $350 billion.
“The valuation is for the market to decide. We will simply need to make sure what the company brings to investors in terms of value creation and opportunities,” said Al-Falih.

 

•  John Defterios, CNNMoney emerging markets editor and CNN anchor, is the host of “Marketplace Middle East.”