The financiers and corporate chieftains gathered for Saudi Arabia’s ‘Davos in the Desert’ heard the same message again and again. From the crown prince down, Saudi leaders wanted no room for doubt: the initial public offering of oil giant Aramco is “on track” for 2018. But beneath the disciplined message put forward in Riyadh lies a more uncertain reality. The 2018 deadline looks tight and the final shape of the deal — exactly where it happens, how big it is and who gets to take part — is no clearer than it was a week ago. There’s a lot at stake in Saudi Arabia and beyond. Potentially the biggest equity sale in history, the IPO is the centerpiece of Crown Prince Mohammed bin Salman’s ambitious reform program and intended to seed a $2 trillion sovereign wealth fund to carry the Middle East’s biggest economy through the end of the oil age. It will also mean a giant pay day for Aramco’s Wall Street advisers including JPMorgan Chase & Co. and Morgan Stanley. Since Prince Mohammed surprised everyone in early 2016 with his promise to partially privatize the country’s most valuable asset, Saudi officials have said the IPO would take place next year and involve both a domestic and an international listing, most likely in London or New York.
As recently as this month, Khalid Al Falih, the country’s energy minister and a close confidant of the prince, supported the official line: the IPO will happen in 2018, both on the Tadawul, Riyadh’s local exchange, and overseas. Yet on Thursday, Mohammed Al-Jadaan, the country’s finance minister, became the first senior official to openly discuss the possibility of forgoing the international part of the IPO — its most important element. “We have said publicly that Tadawul is for certain,” Al-Jadaan told the Financial Times. “Are we going to go with an international market? If we go, where are we going? And if we go, are we going public or we are going private?”
What’s more, Aramco executives have started to make a distinction between their preparatory work, which they said will be completed on time for 2018, and the decision to go ahead with the IPO, which is in the hands of the royal court. “Things are on track for 2018,” Aramco Chief Executive Officer Amin Nasser told Bloomberg at the conference. But when asked specifically if that included both the domestic and international IPO, he hedged his response. “That decision will be decided by the shareholder, not by the company. The shareholder will make the decision regarding the venues.”
The head of the local exchange also opened the door to a Saudi-only listing. Khalid Al Hussan said the Tadawul had the “aspiration” to handle the listing alone. He also warned that even if the listing only takes place in Riyadh, the timetable for a sale in 2018 “will be very tight.”
In a country were businessmen seldom speak publicly on government affairs, his comments were seen by many as another indication that Saudi Arabia is reconsidering its initial plan to list Aramco internationally.
The international part of the IPO is proving 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. The Saudi authorities are also struggling to reconcile their desire for the biggest possible pool of capital, probably found in New York, with their preference for relaxed regulation, which points to Hong Kong. Finally, the delay in selecting the venue is cascading into other preparations, including accounting, putting the schedule under further pressure.
“Going through the IPO process is complicated,” Euronext CEO Stephane Boujnah said in an interview in Riyadh. “It’s a big move even for a small company, so you can imagine when a very big company, which is so significant for the wealth of the country, is going through that process, it’s normal that some compromises take time to be defined.”
And yet, the IPO is so important for Prince Mohammed, who’s become the kingdom’s dominant political force, that few would dare to bet against it.
Prince Mohammed, often known by the acronym MBS, has said Aramco could be worth at least at $2 trillion, giving the 5 percent the country has said it could sell at a market valuation of $100 billion, dwarfing the $25 billion that Chinese group Alibaba raised in the biggest IPO to date. And with the crown prince firmly behind it, many believe that Aramco will be sold in 2018, whatever it takes.
Privately, Aramco executives and its advisers say that if the government gives the green light soon, a listing on the second half of 2018 in Riyadh is possible, but adding London or New York on top would be very difficult. A domestic sale could be enough to claim mission accomplished and save face, even if it’s a long way from the original plan.
“Clearly, there are many serious problems with Saudi Aramco’s privatization,” said Paul Stevens, an oil expert at Chatham House think tank in London. “The problem: it is the flagship for Vision 2030 and MBS’s reputation.”