From The Wall Street Journal
Preparations for the public listing of Saudi Arabia’s state oil company, a centerpiece of the government’s plan to open its economy, have stalled, leaving government officials and people close to the process doubting that it will go forward at all.
The initial public offering of Saudi Arabian Oil Co., better known as Aramco, was meant to be the cornerstone of the kingdom’s plan to be less reliant on oil. It would create the largest public company in the history of capital markets, an opportunity coveted by Wall Street’s biggest names.
Yet doubts have crystallized in recent months, after two years of work to prepare Aramco for its debut. Saudi officials and people close to the process say the company and the country simply aren’t ready for an IPO that could raise $100 billion but also bring unprecedented scrutiny to the kingdom’s crown jewel.
“Everyone is almost certain it is not going to happen,” said a senior executive at Aramco, speaking of the IPO.
A spokesman for Aramco declined to comment. Representatives for the Saudi energy ministry and the government didn’t respond to questions.
First proposed by Saudi Crown Prince Mohammed bin Salman in January 2016, the IPO was originally meant to be done last year. It has been pushed back several times and was most recently slated for next year.
Until recently, despite the delays, work on the IPO had appeared to be progressing, if slowly. For months bankers and advisers worked with the company and with government officials to ready the company for the IPO, a staggering task that involved figuring out how to disentangle the state company from the government and from other state-owned entities.
Activity has slowed down in recent months. Aramco invited law firms to Dubai to pitch for a possible role in the IPO earlier this year and asked them to prepare for the possibility it could list on several different international venues. Aramco officials later told them they had no plans to make a decision soon, people involved in the process said.
Aramco executives and outside advisers have become more vocal in recent months about telling Prince Mohammed about the problems with listing the company, government officials said.
Saudi officials say they have determined that listing on a large stock exchange in New York, London or Hong Kong would carry too many legal risks, exposing Aramco to shareholder lawsuits, for example.
They have also soured on a backup plan of listing only a tiny part of the company on the Saudi stock exchange, known as the Tadawul, the officials said. Saudi officials are trying to obtain a valuation of as much as $2 trillion for Aramco, so even a small listing could overwhelm the Tadawul, which has a market capitalization of about $523 billion, according to the World Federation of Exchanges.
A decision on what to do rests in the hands of Prince Mohammed, the son of King Salman and the country’s day-to-day ruler. He could still plow ahead with the IPO anyway: The float of about 5% of Aramco is meant to be the central pillar in his vision of a more modern, market-oriented kingdom, providing an influx of capital for the Saudis to invest in non-oil sectors.
Opposition to the IPO has been firm within Aramco itself, including from energy minister Khalid al-Falih, who is also chairman of the company, Saudi officials said. Last month, Mr. Falih signaled more delays for the IPO, saying “timing isn’t critical for the government of Saudi Arabia.”
“It would be nice if we can do it in 2019,” Mr. Falih said at an Organization of the Petroleum Exporting Countries conference in Vienna. “There is a lot more at stake than just ticking a box and say: ‘We got this out of the way.’”
Saudi leaders no longer see the IPO as the only way to raise money for the kingdom’s future, Saudi officials and other people familiar with the kingdom’s planning said.
Oil prices have more than doubled to nearly $80 a barrel since Prince Mohammed floated the idea of an Aramco IPO, giving the Saudi kingdom a jolt of cash. The Saudis have a rare moment when they can increase oil production and still benefit from high prices because of oil shortages stemming from Iran, Venezuela and Libya.
The Saudis have also raised billions of dollars by selling sovereign bonds to foreign investors, Saudi officials said. The Saudis raised $17.5 billion in their first-ever global bond issuance in 2016 and have since done several more.
Saudi Arabia has also shown it can make economic and financial changes without the impetus of the IPO. For instance, this year its stock market has secured inclusion on key indexes that is estimated to bring billions of investment into the kingdom. The kingdom this year also introduced changes such as a 5% value-added tax and energy-subsidy cuts meant to wean the kingdom off its large reliance on oil revenues.
Another option discussed has been selling a stake in Aramco to China instead of doing an IPO, which would raise a similar amount of money. People close to the process said there have been no active talks about such a sale recently. One person said China is less interested in Saudi crude oil and is more interested in buying Iranian oil at a discount after U.S. sanctions scare away other buyers this year.
Saudi officials say they have been careful to avoid publicly acknowledging how badly the IPO process is going to avoid damaging relationships with banks and other advisers. The delays have already frustrated bankers working on what had been billed as a historic IPO involving JPMorgan Chase & Co., HSBC Holdings PLC and Morgan Stanley , among others, people familiar with the process say.
Bankers and other advisers have stationed dozens of employees inside Saudi Arabia to help the kingdom and Aramco prepare for more than two years, taking minimal fees in the hope of a huge payout when the IPO actually happens.
Scrapping the IPO would also disappoint stock exchanges that have vied for the listing, including exchanges in the U.S. and the U.K.
President Donald Trump tweeted his support for a U.S. listing, while the U.K. has changed its rules for publicly traded companies to make it easier for a state-owned company to do an IPO.
