Saudi may delay foreign part of Aramco IPO in setback to reform plan

15/10/2017 07:50 AST

Saudi Arabia is considering delaying the international portion of the giant initial public offering of its state oil company until at least 2019, according to people familiar with the situation, who said a domestic share sale in Riyadh could still happen next year.

A two-stage Saudi Aramco IPO is one of several options being considered, the people said, asking not to be identified because discussion are private. Another plan would include listing in Riyadh next year and privately selling a stake in Aramco to one or several cornerstone investors, one of the people said.

The IPO is the centrepiece of a broad-ranging economic reform programme proposed by Crown Prince Mohammed bin Salman. Any delay would be a setback to his plans as well as the plethora of international investment banks and international exchanges eyeing millions in fees and commissions.

Saudi Arabia has been making contingency plans for a possible delay of the IPO, expected to be the largest in history, Bloomberg News reported last month. While the government has insisted the original timetable remains on track, several important decisions have yet to be taken, including a location for the international listing, stretching the ability of the company to sell shares overseas before the end of next year.

There is a precedent for bringing in cornerstone investors before a groundbreaking commodities IPO. Glencore sold in 2009 a stake through a convertible bond ahead of its 2011 IPO, still the largest ever in London where the company raised nearly $10bn.

Despite the work on alternative plans, Saudi Arabia said earlier this month that schedule for the blockbuster initial public offering wasn’t “slipping” and the country still planned a sale by the end of 2018.

The government is “moving right ahead” for an IPO of Saudi Aramco in the second half of next year, Oil Minister Khalid al-Falih said in Moscow. “There is nothing to indicate that schedule is slipping in any way.”

The Financial Times on Friday reported that Saudi Arabia could shelve the international portion of the IPO, instead opting for a local listing in 2018 combined with a stake sale to a Chinese investor.

The government has said the sale of 5% of the shares could value the company at as much as $2tn, though analysts have tended to give lower estimates. If Saudi Arabia achieves its valuation, the 5% stake it plans to sell would raise about $100bn. That would eclipse the $25bn raised by Alibaba Group Holding Ltd in 2014.

London and New York exchanges are vying for a role in Aramco IPO, with Hong Kong, Singapore, Tokyo and Toronto also trying to attract the sale. The Financial Conduct Authority, the UK markets regulator, on Friday defended a proposal to change listing rules that would make it easier for Saudi Aramco to list in London. Lawmakers and investors have expressed concerns on changing the rules to benefit Aramco.

Saudi Aramco has hired JPMorgan Chase & Co, Morgan Stanley, HSBC Bank, Moelis & Co and Evercore Inc to advise on the IPO. Independent Wall Street consultant Michael Klein is advising the oil ministry.

A gas flame is seen in the desert near the Khurais oilfield, Saudi Arabia (file). The Aramco IPO is the centrepiece of a broad-ranging economic reform programme proposed by Crown Prince Mohammed bin Salman. Any delay would be a setback to his plans as well as the plethora of international investment banks and international exchanges eyeing millions in fees and commissions.

Gulf Times