Saudi Aramco signalled another potential delay for the world's largest initial public offering after it started talks this week to buy a stake in a local petrochemical company.
The state-owned oil company said it may buy a strategic stake in Saudi Basic Industries from the country's sovereign wealth fund. Sabic, as the chemical company is known, carries a market value of little more than $100 billion and the sovereign wealth fund controls a 70 per cent stake.
Amin Nasser, Aramco's chief executive officer, said in an interview that the company is still in the early stages of talks and a deal is not certain. "A potential Sabic deal would affect the time frame for Saudi Aramco's initial public offering," Mr Nasser told Arabiya television in an interview airing Friday. A stake in a chemical company like Sabic makes Aramco less vulnerable to volatile oil prices, and would be positive for its revenue, Mr Nasser told Arabiya. The remarks raise the spectre of further delay for an IPO that could raise as much as $100 billion.
Delay
Saudi energy minister Khalid al-Falih said last month that while “it would be nice if we can do it in 2019, there is a lot more at stake than just ticking a box and say, ‘We got this out of the way.”’
The plan to sell shares in the state oil giant next year is itself a delay from an original plan for 2018. For almost two years, Saudi officials said repeatedly the IPO was “on track, on time” for the second half of 2018. Earlier this year, they admitted it would be delayed into 2019. In May, Al-Falih said that the sale would “most likely” happen next year.
In June, though, the minister hinted at a fresh delay, saying only that it would be nice to sell shares in 2019. And many observers “including members of the company’s senior leadership “ doubt whether it will happen at all. “Aramco is ready for the initial offer and the timing remains subject to the state’s decision,” Nasser told Arabiya on Friday, reiterating a long-held position that leaves the final go-ahead with the royal court.
A key plank of Crown Prince Mohammed bin Salman's plans to reform the Saudi economy, the Aramco IPO would be a seismic event for financial markets. Saudi officials said they hope to raise a record $100 billion by selling a 5 per cent stake, valuing the company at more than $2 trillion. Such a deal would dwarf the $25 billion raised by Chinese retailer Alibaba Group Holding in 2014. However, some analysts, including Sanford C Bernstein and Rystad Energy, have suggested a figure closer to $1 trillion.
Firepower
The cash from the IPO would have given the Saudi sovereign wealth fund firepower for fresh deals. The potential deal between Aramco and Sabic could enable the sovereign fund to raise billions of dollars it had hoped to collect from Aramco’s stalled IPO.
Since Prince Mohammed announced the Aramco IPO plan in early 2016, Riyadh has been aiming to sell shares on the Saudi local market and perhaps overseas. The international IPO is proving particularly difficult for several reasons. First, Prince Mohammed has said publicly Aramco should be valued at $2 trillion or more, a figure few outside the kingdom see as realistic.
Saudi authorities are also struggling to reconcile their desire for the biggest possible pool of capital, likely in New York or London, with their preference for less-stringent regulation, which would point to Hong Kong. Aramco has hired several Wall Street banks, including HSBC Bank Plc, Morgan Stanley and JPMorgan Chase, which have been working for months to prepare the deal. – Bloomberg
