Uncertainties continue over proposed sale of Saudi Aramco shares

November 05, 2017

Washington - Amid questions about the pace of implement­ing major economic re­forms in Saudi Arabia, Riyadh is pushing back against rumours regarding the status of the initial public offering (IPO) of state energy conglomerate Saudi Aramco.

The sale of up to 5% of Saudi Aramco is the cornerstone of the kingdom’s economic overhaul pro­gramme known as Saudi Vision 2030 and the government of King Salman bin Abdulaziz Al Saud is seeking to reassure the global in­vestment community that the IPO will not be delayed beyond 2018.

The Saudi government has been modifying its National Transfor­mation Programme 2020 (NTP 2020), which covers the period from 2016-20, in the face of eco­nomic setbacks and to correct un­realistic target dates set to achieve key financial goals.

Riyadh has received a welcome boost from a seemingly unlikely source in supporting the resched­uling of major economic changes: The International Monetary Fund (IMF), which has pushed the Saudi government to enact economic reforms to reduce its dependence on oil-derived income. The IMF suggests that the current revamp plans could damage the Saudi economy.

In its annual assessment, the IMF suggested: “The strong fiscal buffers, the availability of financ­ing and the current cyclical posi­tion of the economy mean that rapid fiscal consolidation is nei­ther necessary nor desirable.”

The IMF proposed that the king­dom could comfortably delay bal­ancing its budget until 2022. The NTP 2020 has a goal of balancing the budget by 2020.

Riyadh is taking much of the IMF advice to heart. Saudi Finance Minister Mohammed al-Jadaan said his government won’t rush to meet its previously slated tar­get goal for a balanced budget to gauge how the Saudi economy is responding to fiscal policy. At the IMF’s annual meeting, Jadaan said: “We will move with our schedule but areas where we think actually we can adjust the reforms so that they’re not as aggressive, we will.”

Though the Saudi Aramco IPO falls outside of the parameters of NTP 2020 and is not affected by the rescheduling of economic reforms, the international investment com­munity is closely monitoring ru­mours regarding the anticipated sale of shares in the state energy firm. The Saudi government has said it hopes to earn as much as $100 billion from the IPO based on a $2 trillion valuation of Saudi Aramco.

Media reports suggested that the Saudi government is mulling by­passing the listing of Saudi Aramco shares on international exchanges in favour of entering into private sales with foreign sovereign funds and institutional investors. No­tably, a Chinese consortium that includes state oil firms PetroChina and Sinopec and China’s sovereign wealth fund has reportedly con­tacted Saudi Aramco about a direct 5% purchase deal.

Such a scenario would allow Saudi Aramco to avoid revealing its well-guarded financial and op­erational records to a wide audi­ence as would be required for list­ing on foreign exchanges.

Though the London and New York stock exchanges have been leading contenders for the Saudi Aramco IPO, both are problematic: In Britain, there has been concern that corporate governance rules are being softened to accommo­date a limited sale of the firm’s shares; listing in New York could leave the Saudi government vul­nerable to lawsuits by American citizens allowed by US anti-terror­ism legislation.

Another rumour has the Saudi government rolling out its IPO pro­cess in two stages, beginning with a listing on the kingdom’s Tadawul exchange in 2019, followed by an international listing in 2020. List­ing on the Riyadh exchange has always been in the cards but the exchange is too small to accommo­date the size of the intended Saudi Aramco sale.

Seeking to dispel speculation that the IPO is being derailed for other options or would be delayed, Saudi Aramco CEO Amin Nasser said in an interview with CNBC that “we have always said that we will be listing in 2018 and, to be more specific, in the second half of 2018.”

“The IPO is on track,” Nasser said. “The listing venue will be dis­cussed and shared in due course.”

In response questions about a private sale, Nasser declared: “Saudi Aramco is not talking to the Chinese or others.”

In another CNBC interview, Sau­di billionaire businessman Prince Al-Waleed bin Talal posited a con­troversial suggestion that the Sau­di government may not stop with the 5% sale of Saudi Aramco.

“No one talks about this idea that if you go 5%, there’s noth­ing that prohibits you from going another 5% next year and 5% the third year and fourth year and so forth, depending on the situation,” he said. “I know this is our treas­ure and we have to keep it but that treasure also needs to support the country.”

Jareer Elass reports from Washington on energy issues for The Arab Weekly.