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Aramco IPO Could Be Valued at $2 Trillion: Saudi Crown Prince

Aramco IPO Could Be Valued at $2 Trillion: Saudi Crown Prince

Thursday, 26 October, 2017 - 10:00
Visitors are seen at the Saudi Aramco stand at the Middle East Process Engineering Conference & Exhibition in Manama, Bahrain, October 9, 2016. REUTERS/Hamad I Mohammed

Saudi Aramco’s initial public offering is on track for next year, and the national oil giant could be valued at more than $2 trillion, Saudi Arabia’s Crown Prince Mohammad bin Salman told Reuters in an interview.

The sale of around 5 percent of Aramco [IPO-ARMO.SE] next year is a centerpiece of Vision 2030, an ambitious reform plan to diversify the Saudi economy beyond oil which is championed by Prince Mohammad.

Saudi officials have said domestic and international exchanges such as New York, London, Tokyo and Hong Kong have been looked at for a partial listing of the state-run firm.

A decision on which exchange would secure the offering has still not been made, fueling market speculation that the IPO could be delayed beyond 2018 or even shelved, amid growing concerns about the feasibility of an international listing.

“We are on track in 2018... but the listing (details) are still under discussion,” Prince Mohammad told Reuters in an interview on Wednesday in Riyadh for release on Thursday. “It will be IPO-ed in 2018.”

"We don’t have any problems, we have a lot of work and a lot of decisions and there are a lot of things that will be announced," he added. The Aramco IPO is the cornerstone of Vision 2030, a much wider plan conceived to reshape the Saudi economy and diminish its dependence on oil.

The crown prince declined to discuss specific details of the IPO, which could be the biggest in history and is expected to raise as much as $100 billion.

Prince Mohammad reiterated that Aramco’s estimated valuation would be about $2 trillion.

“I know that there has been a lot of argument around this topic but at the end of the day the right say is that of the investor. Undoubtedly the biggest IPO in the world must be accompanied by a lot of rumors,” Prince Mohammad said.

“Aramco would prove itself on the ground on the day of the IPO. Actually when I talked about the valuation, I talk about $2 trillion, it could be more than $2 trillion.”

The timing of the IPO will depend on getting legal and regulatory approval from the jurisdictions it opts to list in, industry sources have said. It could also be influenced by the oil price - currently below $60 per barrel - a price Saudi officials have identified as a good level.

Listing Aramco is important for the development of Saudi Arabia’s capital markets and diversifying the kingdom’s economy.

“The government should not be in control of the private sector. You create opportunity, you create business, you create development, you hand it to the investor and start creating something new,” Prince Mohammad said.

“The idea is not to restructure the economy as much as to seize the opportunities available that we didn’t address before.”

OPEC kingpin Saudi Arabia, meanwhile, is leading OPEC and other oil producers such as Russia to restrict oil supplies under a global oil pact to drain global inventories and boost oil prices.

“We are committed to work with all producers, OPEC and non-OPEC countries, we have a great and historic deal... We will support anything to stabilize the oil demand and supply,” Prince Mohammad said when asked whether the kingdom would support extending the agreement until the end of 2018.

“I think now the oil market swallowed the shale oil supply, now we are regaining things again.”

On Tuesday, Saudi Arabia’s Energy Minister Khalid al-Falih told Reuters that the kingdom is determined to reduce inventories further through an OPEC-led deal to cut crude output and raised the prospect of prolonged restraint once the pact ends to prevent a build up in excess supplies.

OPEC Countries, plus Russia and nine other producers, have cut oil output by about 1.8 million barrels per day (bpd) since January. The pact runs to March 2018, but they are considering extending it.

Tadawul, Saudi Arabia’s stock exchange, hopes to be the sole venue for the Aramco listing, Chief Executive Officer Khalid Al Hussan said at a conference in Riyadh on Thursday.

Prince Mohammed said that extending the cuts would bring benefits for both OPEC and non-OPEC producers.

"Everyone is benefiting," he said. "It’s the first time we have an OPEC and non-OPEC deal in stabilizing the oil market," he added.

Putin said earlier this month in Moscow that if OPEC and its allies decided to extend the cuts, they should do it until the end of next year. OPEC Secretary-General Mohammad Barkindo said last week that statement is the basis for talks ahead of next month’s meeting, led by Russian Energy Minister Alexander Novak and his Saudi counterpart Khalid Al-Falih.

"Every day, everyone is starting to believe it more," Prince Mohammed said in Riyadh. "They have seen the results. So everyone has the interest to continue keeping the agreement.”

OPEC and a coalition of non-OPEC nations, led by Russia, agreed a year ago to reduce production by 1.8 million barrels a day -- roughly equal to the consumption of France. The deal, personally negotiated by Prince Mohammed and President Putin, was the first Saudi-Russia collaboration in oil in a decade, marking a turn in the frosty relationship between the two nations.

The 24 oil-producing nations that participated in the cuts initially intended to reduce output for six months starting in January, but the supply glut that has weighed on prices since late 2014 has ebbed more slowly than expected. As a result, the group agreed to roll over the cuts in June for another nine months, until the end of March 2018.

While oil prices have risen, with international benchmark Brent near $60 a barrel as the physical market has improved, traders and analysts are still painting a cautious outlook for next year due to forecasts for rising output from the U.S., Brazil and Kazakhstan.

Yet, Prince Mohammed gave a rosier view of the oil market, suggesting he believes higher prices are coming.

"The market has already swallowed the new supply of the shale oil,” he said. "It’s swallowed. Now it’s part of supply. Now we are going into a new era.”

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