Saudi Aramco, the world’s largest company, has been eyeing up a potential IPO for some time, as part of the Crown Prince’s strategy to diversify the Saudi economy. Investors value this IPO in excess of $100bn, the largest in history. However, when part of Aramco does decide to go public, I have doubts over whether the success will match this valuation.
While it is true that Aramco’s heavily oversubscribed $12bn bond issue traded strongly in the months following April, recent events have undermined investor confidence and the Saudi government’s IPO plans. The attack on oil facilities in Abqaiq and Khurais on 14th September caused Aramco bond prices to plummet to monthly lows, and despite the Saudi Energy Minister’s attempts to reassure markets that production would be fully restored by the end of September, the attack highlighted the vulnerability and risk of Aramco.
Furthermore, strong demand for Aramco’s bonds is not a direct indication of interest in owning the company’s shares. Debt investors are typically more ‘passive’ than shareholders, who would have a greater say in how the public-listed 5% of Aramco would be run. Given Aramco’s ties with the Saudi government, and considering the murder of journalist Jamal Khashoggi, investing in Aramco could create difficult questions for large western investors, who in turn must answer to their own shareholders. Ultimately, the political problems raised for investors’ shareholders may deter many asset managers, and result in lower demand for Aramco’s stock.
As the IPO continues to be delayed, investor confidence in Aramco has been bruised, and is not aided by growing market uncertainty and indications of the next recession. The Crown Prince is said to want to value the company at $2tn, but if recent events are anything to go by, Aramco’s stock may well fall short.