Prince Mohammed, the next in line for the throne of Saudi Arabia, broke the silence about Aramco in an interview released this past weekend. He spoke with Asharq Al-Awsat, a Britain-based but Saudi owned news site, and the interview was translated by Arab News, the English language Saudi daily. This is the first mention we have had of the Aramco IPO from the Saudi government or the company in several months.
Now Prince Mohammed says, “We are committed to the initial public offering of Saudi Aramco… I expect that it will happen between 2020 and the beginning of 2021.” He has changed his projections for an IPO several times since he first announced its likelihood in an interview with The Economistat the start of 2016. While it was first expected in 2017 or 2018, the IPO has slowly been pushed back with later projected dates given every few months. Nevertheless, Aramco executives and personnel from the Energy Ministry have consistently insisted that the IPO is “on track.” The young and anxious prince just gave the most details about IPO plans in more than 6 months.
Mohammed’s original projections for an Aramco IPO were never feasible. The company could not be ready before late 2019 at best, because before 2016, Aramco didn’t keep its books according to international standards. It wasn’t until the end of 2018, that Aramco had 3 years of appropriately-kept books—essentially a requirement before an IPO. Moreover, before the IPO idea was broached there was no formal paperwork delineating the corporate structure, incorporation or bylaws. There likely was no written concession agreement granting the company access to the oil reserves by the kingdom. These all needed to be created, and that only happened in 2018. Therefore, the early plans for an IPO by 2018 or earlier were never realistic.
But the prince’s original intent for an IPO was to provide cash for the Public Investment Fund (PIF), which is the kingdom’s sovereign wealth fund. The PIF has been around for almost 50 years, but it has been relatively small. Mohammed bin Salman plans to turn it into a giant investment vehicle. He has said that once he moves ownership of Aramco to the PIF, the PIF would have a value of two to three trillion dollars. He originally envisioned selling five percent of Aramco at a two trillion dollar valuation, which would infuse his investment fund with $100 billion in cash.
Back in 2016 and 2017, Mohammed bin Salman’s PIF needed cash as it sought to invest in trendy startups, as well as Saudi projects like recreation concepts, real estate and planned mega-cities. An Aramco IPO was supposed to provide that cash. But new developments indicate that perhaps an Aramco IPO is no longer a serious endeavor, most likely because the PIF may not even need the cash right now.
Circumstances have changed. The PIF decided to sell the shares it owned in Saudi Petrochemicals giant SABIC to Aramco for $70 billion, though that sale won’t go through until next year. It began taking loans in 2018 to provide much needed immediate cash as well. It backed out of a $45 billion commitment to SoftBank’s Vision Fund II, and several companies decided to refuse discussed investments from Saudi Arabia following the Saudi public relations nightmare that resulted from the murder of Jamal Khashoggi. Moreover, the PIF may be rethinking its strategy of investing in hot start-ups after the UBER IPO bombed and Saudi Arabia’s late-stage investment didn’t bring in nearly as large as a return as the PIF had probably hoped it would.
There are still good reasons to take Aramco public, but they don’t offer any special benefits to prince Mohammed or his father, the king. For one, Aramco’s new charter allows the company to grant shares to its employees. If it did this and then went public, it could be a huge bonus for employees and a potential incentive to retain talent. This would also function like a kind of post-IPO domestic stimulus for the Saudi economy, as it would infuse capital into Saudi Arabia’s private sector.
For Aramco, an IPO would provide some reassurance that the monarch and government would not act capriciously toward the company. Aramco’s traditional independence has been imperiled in recent years. Though only five percent of the company may be listed, at least initially, the disclosure rules and public feedback that come with a public listing would help balance the risks of Saudi Arabia’s authoritarian rule.
Regardless, it does seem that perhaps the Saudi monarchy and the PIF are no longer desperate for the cash an Aramco IPO would provide. An Aramco IPO may very well happen, but it may not happen until the prince, the government or the PIF needs cash again.
Another note: last week, news came that SABIC is embarking on a partnership with Exxon in the US. But there was no clarification of who was behind this move. In 2020, Aramco is supposed to take ownership of 70% of SABIC, but currently the PIF still owns and controls it. It is possible both the PIF and Aramco approve of this deal, but the news was unclear. If Aramco was not part of the negotiations or at least consulted throughout the process, it raises more questions about whether Aramco is simply being forced to buy SABIC and whether Aramco is losing its historic independence from the government.
Source: Ipo Search Results