Saudi Arabia Dustbinning Historic Aramco Public Stock Offering - Report

© AFP 2022 / MARWAN NAAMANA flame from a Saudi Aramco (the national oil company) oil installation known as "Pump 3" burns brightly during sunset in the Saudi Arabian desert near the oil-rich area Al-Khurais, 160 kms east of the capital Riyadh
A flame from a Saudi Aramco (the national oil company) oil installation known as Pump 3 burns brightly during sunset in the Saudi Arabian desert near the oil-rich area Al-Khurais, 160 kms east of the capital Riyadh - Sputnik International
Reports Wednesday from senior industry sources suggest that Saudi Arabia is cancelling or postponing the public offering of its state oil producer and the world’s most profitable company, Saudi Aramco, billed by many as the biggest such deal in history.

"The message we have been given is that the IPO has been called off for the foreseeable future," a senior financial adviser told Reuters. "Even the local float on the Tadawul Stock Exchange has been shelved."

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"The decision to call off the IPO was taken some time ago, but no-one can disclose this, so statements are gradually going that way — first delay then calling off," a Saudi source familiar with the IPO plan told Reuters.

Doubt has surrounded the initial public offering (IPO) for months. Essential questions about the offer, such as which markets and which banks will get to take part in the debut, have continually been deferred. In March, the Wall Street Journal reported that Aramco's international offering was being postponed and that the IPO would initially only happen on the domestic Tadawul Stock Exchange in Riyadh.

Headquartered in the Persian Gulf port of Dhahran, Saudi Aramco produces 10 percent of the world's crude oil, according to the Economic Times, and was billed by Bloomberg earlier this year as the "world's most profitable company." It was founded by American investors in 1933 as the California-Arabian Standard Oil company, which the newly formed Saudi monarchy slowly exerted increasing pressure on, acquiring bits and pieces until it totally owned the company by 1980.

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However, earlier this month, Saudi Energy Minister and Aramco chairman Khalid al-Falih said in the company's 2017 annual report that Aramco "continued to prepare itself for the listing of its shares, a landmark event the company and its board anticipate with excitement."

The IPO has figured in Crown Prince Mohammed bin Salman's vision of Saudi Arabia's future since his first interview with international press in January 2016. The cornerstone of Salman's modernization of the country will be the Public Investment Fund (PIF), a sovereign wealth fund, which functions essentially like a national savings account. Salman's plans to attract foreign investment were grounded in a strong PIF, which was itself to be heavily funded by Aramco's public offering, expected to raise at least $100 billion by itself even though it was to have been for only 5 percent of the company. Right now, the PIF has about $250 billion in it out of a promised $2 to $3 trillion.

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Without a public Aramco bringing in the dough, the PIF — and the credibility of Salman's economic vision — remain up in the air. Forbes journalist Ellen R. Wald, who is also author of the book "Saudi, Inc.," has suggested that Salman's plans were mostly hot air anyway, noting that "in truth, Saudi Arabia's economic future does not and never did depend on an Aramco IPO. However, the king and his son portrayed a public listing of Aramco as a key aspect of Saudi Arabia's economic future," which means the end of the IPO will appear far worse than it really is.

Why pull the public offering, though? One theory floated by Forbes is that because it has been state-owned since 1980, Aramco is "the one major oil company that is not beholden to short-term financials," meaning it can "can continue to look to the long-term" instead of seeking to please shareholders with immediate returns. That gives it much more confidence investing in oil field exploration and efficiency improvement of its current assets.

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July 20, Aramco CEO Amin Nasser noted in an interview with Al-Arabiya television that Aramco was looking at acquiring a stake in the Saudi Basic Industries Corp, a publicly traded petrochemical company, as part of its plans to diversify assets beyond petroleum production. Financial advisers told Reuters Wednesday that the PIF may be about to sell off about $70 billion in assets from SABIC to patch up funding from the Aramco IPO falling through.

Forbes noted that Aramco not going public won't affect oil prices, which have been steadily rising for weeks amid expectations of lower supply due to looming US sanctions on Iranian oil products, and that the IPO was never expected to have a significant impact on Saudi Arabia's oil production.

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