For more than two years, investment bankers in the US and London have been salivating over the prospect that Aramco, the state-owned Saudi oil company that’s believed to be one of the most valuable companies in the world, could choose to list shares representing a 5% stake in the company on the London Stock Exchange, New York Stock Exchange, or Nasdaq.
But despite reports that the royal family had “shortlisted” New York, London and Hong Kong as possible venues for the offering - news that intensified an already escalating geopolitical “Game of Thrones” between bankers and politicians - the Kingdom is continuing with a Financial Times-assisted campaign of mixed messaging, suggesting that the IPO could either be delayed for another year or two, or possibly being shelved indefinitely in favor of a direct sale to a coterie of Asian sovereign wealth funds or possibly even directly to the Chinese government (much to the US's chagrin).
In its latest inside-baseball report on the endlessly fraught back-and-forth, the Financial Times is saying a public offering won’t happen until 2019 at the earliest - if it happens at all. However, in an unusual twist, the paper is sourcing its story to UK officials, not the Saudis, as has often been the case in the recent past.
Saudi Aramco’s listing is unlikely to go ahead this year, according to British officials who have been warned by their Saudi counterparts that the world’s biggest flotation was expected to be delayed.
Several people briefed on the talks said London still had a good chance of securing the listing, which Riyadh said could value the state energy company at $2tn, but any foreign flotation was likely to happen in 2019 at the earliest.
Saudi Arabia wants to sell 5 per cent of the world’s largest oil-producing company as part of an economic reform programme driven by Mohammed bin Salman, the Saudi crown prince, who visited the UK this week.
As we’ve pointed out many times in the recent past, there is one overwhelming impediment to the deal, and that’s the price of oil.
Saudi Arabia has dominated world oil supply for half a century, but in recent weeks, US crude production has overtaken The Kingdonm.
With global oil prices repeatedly faltering around the $60 a barrel mark, bankers are having a hard time swallowing the $2 trillion valuation that the Saudis have ascribed to what many consider to be the Kingdom’s “crown jewel” asset.
At that valuation, a 5% stake would be worth $100 billion - but bankers in all three potential venues have raised doubts about this price, with some reportedly claiming the stake would be worth half that number.
Delays on IPO decision-making come as advisers have struggled to achieve the $2tn valuation that Prince Mohammed wants. Saudi Aramco’s finances and internal operations have been shrouded in secrecy for decades and its close relationship with the state has raised financial, legal and regulatory challenges.
MbS visited the UK last week - a visit that undoubtedly included some discussion about the IPO - and is planning to embark on his second Trump-era White House visit later this month. But despite President Trump doing everything he can to lobby on the US’s behalf (who could ever forget that indelible shot of him touching the orb?) the chances of an offering coming to the US are looking increasingly remote...as Aramco’s leaders have expressed reservations about the possibility of a legal crackdown, as OPEC price cuts and other state-sanctioned maneuvers to bolster the price of oil could be interpreted by US regulators as blatant market manipulation. Plus, there’s also the question of that pesky lawsuit brought by the families of 9/11 survivors who are seeking to hold the Kingdom accountable amid suspicions about its role in the World Trade Center attacks.
Khalid al-Falih, the energy minister, told CNN this week:
“I would say litigation and liability are a big concern in the US...
...Saudi Aramco is too big and too important to be subjected to that kind of risk.”
Initially, Aramco had targeted a late-2018 offering, with shares slated to list on both the Tadawal - Saudi Arabia’s domestic exchange, which was only recently opened to foreign investors - and one of the three venues mentioned above.
The FT also broke the news about the possibility of a sale to the Chinese government, or possibly a group of private investors.
UK officials said if Riyadh decided to list abroad they expected a domestic and foreign listing to take place around the same time. One person close to the talks said this could take place in the first or second quarter of 2019.
London, New York and Hong Kong are among foreign bourses competing for the share sale. A private sale to strategic investors has been another option under consideration.
Saudi officials have been split on where to list. Prince Mohammed, ultimate head of the kingdom’s oil affairs, has ambitions to list in New York and is hoping US officials will make regulatory concessions to pave the way for a deal there when he visits this month.
But senior ministers and Saudi Aramco executives have said privately that London might be a better fit.
Aside from low oil prices, a dispute between MbS and the officials in charge of Aramco has also contributed to the sale’s delay:
Amin Nasser, Saudi Aramco’s chief executive, said at a conference of British and Saudi business leaders on Thursday in London that all preparatory work required from the company would be completed in the latter half of 2018.
This is a shift from previous comments from the kingdom’s officials who had said that preparations had already been completed and any final decision lay with the highest authorities in Saudi Arabia.
Indecision in Riyadh about the IPO structure has caused frustration among company executives and advisers. Decision-making timelines have slipped and other options for a privatisation have emerged, as the complexities of executing the IPO have become clear — from legal risks to disclosure rules.
Of course, these details are probably a distraction; the price of oil is the paramount factor. As it climbs, Saudi officials will have more leverage to demand the coveted $2 trillion valuation. Given MbS’s strongman posturing (remember his “corruption purge”) it’s likely that Saudi Arabia will resort to increasingly desperate measures to push the price of oil higher.
...And what better way to boost the oil price than an armed conflict between KSA and its regional archrival Iran. The two powers are already engaged in a proxy war in Yemen, and Saudi has reportedly been developing an unlikely partnership with Israel to counter Iran’s growing influence in the region.
Indeed, the money gleaned from MbS’s shakedown of the country’s corporate elite (including dozens of his own family members) will quickly run out as the $100 billion he’s believed to have acquired is barely enough to plug this year’s budget shortfall.
With MbS's US visit looming, look out for some more “developments” pertaining to this conflict in the coming weeks...
As Bloomberg notes, Aramco’s IPO will put a price tag on the future of petroleum just as Saudi Arabia is fixing its sights on the end of its own oil age.