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Courtney Freer

Unanswered questions over Aramco IPO could undermine Saudi crown prince's vision

'The spectre of rising regional tensions will undoubtedly worry international investors' [Getty]

Date of publication: 13 November, 2019

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Comment: The fate of the Aramco IPO could have huge political implications for the young crown prince's future, writes Courtney Freer.
Nearly three years have passed since Saudi crown prince Mohammed bin Salman (MbS) announced the possibility of IPOing Saudi Aramco as part of his ambitious Vision 2030 to help diversify the kingdom's economy away from oil.

And last Sunday, Saudi Aramco, the world's most profitable company, formally announced that it intends to float shares on the Saudi stock market, the Tadawul. Once this goes through, Aramco it is set to become the world's most valuable public company, a spot currently occupied by Apple.

Although these plans have been in the making for years, details about the company's IPO remain somewhat unclear.

Indeed, Mohammed bin Salman 
initially said that the five percent of the company would be IPOed in 2017 on an international stock exchange such as Hong Kong, London, or New York, as well as on the Tadawul, and would be valued at $2 trillion - neither of which seems likely today.

As far as listing internationally, legal complications apparently arose in the United States, and any international listing would require more transparency into finances, reserves and links between Saudi Aramco and the ruling family. And in terms of valuation, 
experts have put the Aramco IPO at between $1.2 to $2.3 trillion - a huge range which indicates just how little is known about the company's assets.

Certainly, several questions remain about the IPO aside from valuation: When it will start, why now, how much of the company will be IPOed, and, perhaps most crucially, whether investors have an appetite for becoming involved. 

Any international listing would require more transparency into finances, reserves, and links between Saudi Aramco and the ruling family

Media reports have suggested around 2 percent of Aramco will be offered publicly on 5 December, and begin trading on 11 December. It also appears that the Saudi government will face a one-year restriction on selling shares on international markets after the domestic IPO, and so could list abroad as early as 2020.

One thing that does remain clear in the face of uncertainty is that the decision-making on this matter is centralised in the hands of the crown prince. Indeed, at the recent Future Investment Initiative in Saudi Arabia, Energy Minister Prince Abdulaziz bin Salman straightforwardly told the conference that the IPO listing would be "a Saudi decision first of all and, specifically, Prince Mohammed's decision." The IPO's success, then, could have huge political implications for the crown prince's rule, not to mention for his ambitious Vision 2030.

Indeed, according to Vision 2030, the proceeds from the Aramco IPO are meant to go primarily into the country's sovereign wealth fund, the Public Investment Fund (PIF), which is driving forward implementation of the Vision's plans.

[Click to enlarge]

The PIF in late October finalised a $10 billion loan deal, perhaps to increase liquidity in light of its plans to buy stakes in Saudi Basic Industries Corporation (SABIC), and remains central to Vision 2030.

Saudi Aramco is now said to be courting international investors, with a roadshow set to kick off on 18 November. As far as international interest goes, Chinese investors, including Sinopec, are said to be considering investing as much as $10 billion in the IPO.

Meanwhile, the head of Japan's largest refiner, JXTG, 
said it was unlikely that Japanese companies would invest in the Aramco IPO due to lack of disclosure about information like crude oil reserves and links to the ruling family.

Aramco supplied nearly 36 percent of Japan's crude imports in September, and yet JXTG Holdings president, Tsutomu Sugimori rather candidly
cited their need to have "good reasons to explain to shareholders why they would make such hefty investments and we need to do strict due diligence."

The decision-making on this matter is centralised in the hands of the crown prince

It is likely that other countries may feel the same about potentially investing large sums in Saudi Aramco.

In terms of domestic investment, rumours surfaced earlier this year about efforts to convince major Saudi business families to invest, with bonuses offered for Saudi nationals who hold their shares for 180 days. Others suspect that powerful Saudi families are being pressured to invest, given that the government mediates their access to economic opportunity.

Beyond the issue of transparency, the timing of the IPO is difficult. Indeed, while Saudi Aramco recovered impressively quickly after the attack that cut back half of its production in September, tensions with Iran, especially with the news about renewed efforts to enrich uranium at its Fordo facility last week, are by no means no longer an issue. The spectre of rising regional tensions will undoubtedly worry international investors.

Read more: Saudi crown prince 'bullying' mega-rich citizens into buying failing Aramco stocks

Further, while most major companies returned this year to the Saudi investment forum, after last year's boycott over Jamal Khashoggi, recent news about the Saudi state using two Twitter employees as spies likely makes US investors nervous about investing in a company with close links to the ruling family. 

The two former Twitter employees have been charged with spying on critics of the Saudi government, and a complaint in the US district court in San Francisco revealed "a coordinated effort by Saudi officials to recruit employees" at Twitter to obtain the data from thousands of Twitter users.

Concern over the Khashoggi killing, political prisoners inside the kingdom, and the Yemen war and its implications for the region are also undoubtedly still present.

On the whole, more questions than answers exist at present about the Saudi Aramco IPO

Global concerns about climate change present another challenge. Indeed, global demand for oil is decreasing. OPEC has said in a recent report that annual demand for oil will decrease to 500,000 barrels per day at the end of the next decade.

As a result, investments in fossil fuel companies are potentially problematic. In fact, the Norwegian sovereign wealth fund pledged earlier this year to phase out oil and gas stocks.


While Saudi Aramco has said it's petrochemicals more than oil that will continue to drive its growth, and while it is also investing in renewable technologies, it is uncertain how profitable both will be, especially in comparison with past sales of petrol.

On the whole, then, more questions than answers exist at present about the Saudi Aramco IPO. What is certain, however, is that the success or failure of the venture will have major implications for the rule of Mohammed bin Salman, who remains personally linked to the venture.


Dr Courtney Freer is a senior advisor at Gulf State Analytics and a research officer for the Kuwait Programme at the London School of Economics and Political Science. 

Follow her on Twitter: @CourtneyFreer

Opinions expressed in this article remain those of the author and do not necessarily represent those of The New Arab, its editorial board or staff.

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