ARAMCO'S IPO PROBLEMS

PLATTS - 09 Mar 2020 - Saudi Arabia has not ruled out an international listing of its state oil giant Aramco but has not begun preparations to do so, according to a high level source, though analysts say the fracturing of the OPEC+ alliance and the oil market's plunge would have put plans on ice anyway.

None of the government committees responsible for Aramco have begun discussions on an international public listing, the source told S&P Global Platts on condition of anonymity. The comments follow a media report at the end of February that early work on an overseas listing, focusing on an Asian exchange, was underway, citing people with knowledge of the matter.

"We're not ruling anything out, but nothing is imminent," the source told Platts. "There are so many other things going on for us to be considering an international listing."

The kingdom has long mooted an offering of up to 5% of Aramco on an exchange, either New York, London or Tokyo, to bring an infusion of cash to fund ambitious economic reforms, with officials aiming for a total company valuation of $2 trillion.

Valuation seen as unrealistic

But investment banks and consultancies have uniformly said that valuation was unrealistic, prompting Saudi Arabia to stage only a domestic listing of 1.5% of Aramco shares in December, which still became the world's most valuable IPO, raising $29.4 billion, including sweeteners offered to boost investor interest.

On Monday, Aramco shares opened trading at Riyals 27 ($7.19) before rising modestly to close at Riyals 28.35. That is 11.4% below its IPO price, prompting the company's valuation to slide to about $1.5 trillion from $1.7 trillion in December, in the wake of Friday's failure by OPEC and Russia to reach a deal on oil production cuts.

Pursuing an additional listing in current market conditions would be detrimental, according to Robin Mills, CEO of the consultancy Qamar Energy.

"The price would be so low, and there would be a read-across to the valuation of the domestic listing, which is probably still higher than it should be," he said.

The 23-member alliance of OPEC+, led by Saudi Arabia and Russia, will be free to pump at will, starting April 1, when its production quotas expire, with Aramco launching the first move in what many market watchers are calling a price war by slashing the official selling prices of its crude exports for April. These include the biggest cut ever for Arab Light crude for Asia, in a bid to take a larger share of the market.

Global oil prices have crashed accordingly. Front-month Brent crude was trading at $36.71/b at 1501 GMT on Monday, down 18.9% from the previous close, after an initial tumble of some 31%, the largest drop since the first Gulf war in 1991.

Share price fall could spark unrest

Ellen Wald, a non-resident senior fellow in the Atlantic Council's Global Energy Center, said the danger for Saudi Arabia is if Aramco's share price continues to slide. With so many Saudi citizens encouraged to invest in the IPO, underperformance of the shares as a result of the collapsing oil price could generate civil unrest, making it even more challenging for Saudi Arabia to implement its economic reforms, she said.

The kingdom in 2016 unveiled its vaunted Vision 2030 program, of which the Aramco IPO was a central plank, aimed at reducing the kingdom's reliance on oil revenues and diversifying its economy by encouraging private investment in non-oil industries. Saudi Arabia in recent years has also sought to reform its tax structure and lower subsidies on energy and electricity to shore up its finances.

"The Saudi government's coffers will suffer from the low oil prices and that will likely impact the government's economic spending program," said Wald, who has also written a book tracing the history of Aramco. "But more importantly, 20% of the Saudi population is now invested in Aramco and Aramco's share price is falling...There could be a large number of disgruntled citizens as a result."

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