Saudi Aramco IPO: the Empty Quarter
The elusive deal is now unlikely to list before the end of the year
Bankers working on the blockbuster flotation of Saudi Arabia’s national oil company are familiar with mirages, even if they have never visited a desert. That lush oasis on the horizon never gets any closer. Finally, it evaporates.
The initial public offering of Saudi Aramco has the same elusive quality. The group promised a deal this year. It is now unlikely to list before the end of the fourth quarter. Political obstacles mean it may never do so.
Gossip that Aramco had stood down at least one underwriting bank prompted the energy minister to express “commitment” to the IPO. Was the implicit message the reverse, as when a football club owner publicly backs a doomed manager?
There are reasons to think so. Mohammed bin Salman is the main one. The Crown Prince, known as MbS, seems touchy for a guy who aspires to world statesmanship. After Canada criticised human rights abuses, Saudi Arabia dumped assets and expelled the Canadian ambassador.
If Lex had an ambassador in Riyadh, MbS would probably kick them out too. Saudi Arabia has staked its reputation on a $2tn valuation for Aramco. The highest number we could get to was half that, albeit when oil was $10 per barrel cheaper.
A listing in London or New York would involve scrutiny currently irksome to the Saudis, even if legal threats are overplayed. No wonder a bond issue appeals more. Equity involves full-on cohabitation with investors. Debt resembles a flat share.
Aramco plans to buy a 70 per cent stake in another state-owned business, Sabic, the refiner and chemicals group. This, with curious symmetry, is valued at around $70bn on the Saudi stock market. The vendor, Saudi sovereign wealth fund PIF, would then have more to spend on the latest high-tech stock tip from Softbank’s Masayoshi Son.
More usefully, a deal with Sabic would increase Aramco’s vertical integration. Cost savings should result. The transaction would chime with MbS’s worthy aim of building up Saudi industries that can outlast demand for oil-based fuels.
But a mooted $50bn bond financing for the Sabic acquisition would be dauntingly large. US telecoms group Verizon completed a $49bn offering in 2013. Many participants would be precluded from investing in an emerging markets quasi-sovereign. That is how Aramco would be seen. Debt syndicate bosses may face their own trek through the desert.