“It will be the biggest IPO on earth”
Saudi Armco, the national oil company of Saudi Arabia, was planning to pull off the world’s largest ever initial public offering, however they are now reportedly reconsidering in favour of a private sale.
In a bid to start diversifying the country’s economy away from oil, Saudi Arabia had been planning on selling 5% of its crown jewel, its oil company, to investors in an IPO. ‘If 1% of Armco is offered to the market, it will be the biggest IPO on earth,” stated Deputy Crown Prince Mohammed bin Salman. The Saudis had expected a valuation of over 2 trillion US dollars for the full 5%, although this figure is significantly higher than that estimated by independent analysts.
A lot is at stake for the Saudis as they are rapidly running through their financial reserves through ventures such as investment into Softbank’s vision fund, which has invested billions across Uber, Slack and other high-profile tech businesses. Furthermore, a lot is at stake for the new Deputy Crown Prince himself as there has been rows over succession since his inheritance of the crown from his predecessor Mohammed bin Nayef. A failure for the IPO to go through and be profitable could reopen this debate. Now, reports suggest the Saudis are instead considering a private sale of the company to the Chinese government and/or other investors.
China has reportedly offered to buy the whole 5% stake of Saudi Aramco on offer. China is one of the world’s largest importers of oil and is set be the largest single user in less than a decade. As stated by the financial times, the level of China’s imports has been pushed up by the decline in domestic production from the long-established fields in Daqing and Shengli and by the difficulty of developing other resources, including the unconventional tight oil in the Ordos basin. This move would help the Chinese secure access to energy for the foreseeable future. Meanwhile, a direct sale to China means that, among other things, Saudi Arabia could avoid the regulatory demands and market uncertainty that come with an IPO.
If an Aramco IPO does happen in NY or London (a big if), the political risk section of the prospectus is going to be an interesting read
— Javier Blas (@JavierBlas) November 5, 2017
New York and London have been considered as likely cities for a potential listing if an IPO were to occur, but each brings its own issues. An American law dealing with lawsuits around the 9/11 attacks, which would allow lawsuits seeking damages for victims to proceed against the Saudi government, was specifically mentioned by Saudi Aramco’s lawyers as a legal risk, especially as the Saudi government would still own roughly 95% of Saudi Aramco post-IPO. London isn’t straightforward either, with the financial regulator facing criticism for considering relaxing its minimum threshold of 25% of a company to be sold in an IPO.
Image: [Oil and Gas People]