Saudi calls off Aramco listing

Saudi calls  off Aramco listing
Saudi Arabia has called off both the domestic and international stock listing of state oil giant Aramco. Saudi Aramco is one of the largest companies in the world by revenue and is also one of the most profitable companies in the world. It has the second largest proven crude oil reserves in the world. It was founded in 1933 as the California Arabian...

Saudi Arabia has called off both the domestic and international stock listing of state oil giant Aramco.

Background

Saudi Aramco is one of the largest companies in the world by revenue and is also one of the most profitable companies in the world. It has the second largest proven crude oil reserves in the world.

It was founded in 1933 as the California Arabian Standard Oil Company and renamed as Saudi Aramco in 1988. Headquartered in Dhahran in Saudi Arabia, it operates the world largest hydrocarbon network, the Master Gas Systems. It produced on the average 10.2 million barrels per day. Saudi Aramco's profit in the first half of 2017 totalled 33.8 billion, significantly higher than Apple’s 28.9 billion for the same period.

Analysis

Saudi Arabia is reportedly stated to have voided its plans to sell shares in state oil giant Aramco, billed as the largest flotation ever.

The financial advisors working on the proposed listing have been dissolved, as Saudi Arabia shifts its attention to a proposed acquisition of a strategic stake in local petrochemicals maker Saudi Basic Industries Corp. The group of bankers mobilized for the biggest ever float has been disbanded without fanfare. The budget for financial advisers, which included JPMorgan, Morgan Stanley and HSBC, who were called in to assist with the deal has not been renewed since June, Reuters reported.

The local float on the Tadawul Stock Exchange has been shelved.

The UK Government had earlier offered $2bn loan to try and secure the deal. Saudi Arabia announced plans to float around 5pc of Aramco in 2016 worth as much as $100bn, as the centrepiece of the Crown Prince’s Salman’s attempts to advance the Kingdom and build economic ties with Western nations. The Crown Prince has pursued a range of investment plans as part of a so-called Vision 2030, a bid to turn the country into a global investment powerhouse and reduce its dependence on the demand for oil. The expected proceeds of an Aramco float were viewed as a key pillar of the plan.

With stakes, this high, London, Hong Kong and New York competed fiercely to host the initial public offering (IPO).

Donald Trump tweeted last year that: "Would very much appreciate Saudi Arabia doing their IPO of Aramco with the New York Stock Exchange. Important to the United States!"

In London the Financial Conduct Authority changed its rules to make the listing easier, attracting some criticism from MPs and from the Institute of Directors who said adapting regulations to accommodate Saudi Aramco could harm the UK's reputation for good governance. No decision had been taken on where to list the shares.

In late 2017 rumours first emerged that the flotation might be cancelled, and it was suggested that Aramco shares might instead be sold privately to the world's biggest sovereign wealth funds and institutional investors.

Saudi Aramco confirmed this week it was in early-stage talks to buy a strategic stake in Sabic from the kingdom’s Public Investment Fund in a private transaction, as the company makes a big push into chemicals to secure future demand for Saudi crude.

It would be a move towards becoming an integrated-energy company similar to Exxon Mobil and Royal Dutch Shell. Saudi Aramco and Sabic last year signed an agreement to build a $20bn complex to convert crude to chemicals.

Assessment

Our assessment is that concerns about legal exposure and an inability to generate the $2tn valuation sought by the crown prince have led to an indecision at the highest levels in Saudi Arabia. We feel that listing in New York would also entail collateral risk, citing terrorism legislation that would permit US citizens to sue Saudi Arabia.

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