As confusion surrounding the world’s largest IPO builds, many market players are hoping for further clarification from authorities.
Excitement about the international initial public offering of state-owned Saudi Arabian Oil Company, or Saudi Aramco, was sky high last year as investors saw the development as a sign that Riyadh was finally getting serious about reducing its oil dependency. Fast forward to present day, and speculation is abounding that such a listing may be indefinitely postponed.
Saudi Arabia could use an upcoming conference by sovereign wealth fund the Public Investment Fund to shed more light on the matter, said Ayham Kamel, head of Middle East and North Africa practice at political consultancy Eurasia Group.
“Crown Prince Mohammed bin Salman will address the Future Investment Summit organized in Riyadh this month and could use the occasion to elaborate on the government’s plans,” he wrote in a recent note.
The summit, which runs from Oct. 24 to Oct. 26, is expected to draw several global business leaders and asset managers such as BlackRock CEO Larry Fink, HSBC CEO Stuart Gulliver and SoftBank CEO Masayoshi Son.
Rumors circulated last week that the Kingdom, led by King Salman bin Abdulaziz Al Saud and Crown Prince bin Salman, could scrap plans for a 2018 international listing and opt for a private share placement instead, according to last week’s Financial Times report. Khalid Al-Falih, the country’s energy minister and Aramco’s chairman, has dismissed those claims, telling CNBC that progress was being made for the firm’s international debut.
But some strategists still remain skeptical.
“One thing I’m very confident of is that [officials] don’t know what they’re going to do yet,” said Kamran Bokhari, a senior analyst with intelligence firm Geopolitical Futures as well as a senior fellow at the Center for Global Policy. “To me, it sounds like they don’t have their house in order.”
Aramco, the biggest oil producer on the planet, is expected no matter what to debut shares on the Saudi exchange — the Tadawul — next year.
“The latest rhetoric from Saudi oil minister points to the fact that the review is still ongoing and with the stakes of this decision, I am inclined to think that this may remain the type of soundbites for the market until a decision has been made,” said Jingyi Pan, market strategist at IG.
To delay or abandon?
Many believe Riyadh won’t completely desert the idea of an international IPO given its significance to the nation’s economic transformation program, known as Vision 2030.
Crown Prince bin Salman “would find it difficult to walk away from his commitment to increase transparency in Aramco and the kingdom,” Eurasia’s Kamel said, adding that he expects a private placement to be “a precursor, not a replacement” for a secondary listing.
Launched last year, Vision 2030 aims to diversify Saudi Arabia’s state revenue away from energy, but progress remains slow, sparking doubts over the initiative’s feasibility. Non-oil GDP growth in 2017 is expected to be weaker compared to the first part of the decade due to lower oil prices and fiscal consolidation, Khatija Haque, head of Middle East and North Africa research at banking group Emirates NBD, wrote in a note earlier this month.
Postponing the IPO from 2018 to 2019 could make sense for Riyadh: It would not only provide the government with more flexibility to list when oil prices strengthen, it could also support the succession process and equip the king-in-waiting with political gains, Kamel said.
But Bokhari said it’s entirely possible for an international offering to remain on hold: “It seems like one of those things they floated just to see what kind of response they would get.” A key reason for an international IPO was raising non-oil sources of revenue, so officials might just be satisfied with a private sale, he continued.
In addition to timing, location also remains an unknown — exchanges in New York, London, Tokyo and Hong Kong have been raised as contenders to host Aramco’s shares.