Asia and the Saudi Aramco IPO


20/03/2017 07:27 AST

King Salman’s month-long tour of Asia ended with a more-than-successful visit to China, the largest energy consumer in Asia and the second-largest crude oil consumer in the world after the US.

Wherever the king went in Asia, Saudi Aramco seemed to be active. In Malaysia, Aramco went into a partnership with the national oil company Petronas over a refining project. In Indonesia, Aramco is building a refinery in central Java with the state-owned company Pertamina. In Japan, Saudi Aramco is the top oil exporter to the nation and the company has a stake in Showa Shell. And finally, Saudi Arabia is the largest exporter of crude to the Chinese market and Aramco has a venture with Sinopec and ExxonMobil to refine oil and produce petrochemicals in Fujian.

Looking forward, Saudi Aramco is determined to become the world’s largest oil refiner by doubling its capacity to refine between 8 to10 million barrels of oil a day globally. Asia could be center-stage for this refining push.

For a company that wants to list its shares globally for thirsty investors, a global reach like this would certainly diversify its business risk and its revenues in the downstream sector. The company will also benefit from this push by securing more markets for its crude sales, as it will supply most of the needs of these ventures. This will be reflected on the valuation of the company when it goes public.

But what else can Asia offer to Aramco? Stock exchanges, for one. In Japan, the Japanese government discussed with King Salman the possible listing of Aramco’s shares on Tokyo Stock Exchange (TSE). The two countries decided to set a working group to study the move. The Chinese are also very keen to see Aramco not only selling crude to them but also listing its shares on Hong Kong’s stock exchange. The nation’s $814 billion sovereign wealth fund, China Investment Corporation (CIC), wants to be a key investor in the planned IPO of Aramco, according to a Bloomberg report. The nation’s largest oil company, China National Petroleum Corporation (CNPC), may also invest in the IPO, it was reported. No formal agreement has been reached — but it all shows how keen the Chinese are.

Saudi Aramco is also said to be looking for a Western market in which to list its shares, beside the local Saudi exchange. Yet a third bourse in Asia could make sense, as this is where the future of Saudi crude will be.

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