Saudi Aramco’s IPO raises 5 questions – Capital Economics

Riyadh – Mubasher: The anti-corruption probe that occurred in Saudi Arabia raised doubts regarding the government’s plan to sell a stake in the Saudi Arabian Oil Co, known globally as Saudi Aramco, Capital Economics' report showed on Thursday.

“Fears that the sale will be scrapped altogether are probably overdone, but given the general uncertainty, this focus answers five questions to shed more light on the privatisation and what it would mean for the Saudi economy,” the report added.

How will Saudi anti-corruption probe impact on Aramco’s IPO?

Aramco’s offering is scheduled to be implemented by the end of 2018, but after the Saudi anti-corruption crackdown, fears were raised that Aramco’s IPO may be cancelled.

As the Crown Prince Mohammed bin Salman will be responsible for the IPO, it is unlikely to be cancelled.

The Kingdom’s officials are interested to list Aramco on the bourse to attract further foreign investments, and to implement dual IPO, Capital Economics noted.

How is Aramco’s privatisation being in line with Saudi Vision 2030?

The Saudi Crown Prince put the IPO of a stake in Aramco as a part of Saudi Vision 2030 through transferring a part of the returns to the Public Investment Fund (PIF) to invest into global projects, and to carry out domestic non-oil industries.

How will IPO impact on Saudi oil output?

“Saudi authorities seem to have one eye on the privatisation in their current deliberations with the rest of Organization of the Petroleum Exporting Countries "OPEC ", one reason Riyadh is stepping up efforts to support oil prices is to bolster the valuation of Aramco,” Capital Economics stated.

Capital Economics does not forecast that Aramco’s privatisation will impact on Saudi oil production, as private sector investors will commit to the Kingdom's decisions regarding production.

How much Aramco’s stake will be sold?

“[Bin Salman] has made a splash by stating that Aramco would be valued at $2 trillion, but meeting this valuation will be difficult,” Capital Economics indicated.

“The markets currently expect oil prices to be around $55 per barrel (pb) in a decade’s time, putting the valuation closer to $1.0-1.2 trillion,”.

On this basis, the IPO will raise around $50-60 billion for the government. 

What does Aramco’s IPO mean to Saudi Arabian economy?

Aramco’s sale will provide the government with flexibility to solve fiscal austerity, which will lead to slight growth, but the IPO will not impact largely on gross domestic product (GDP) growth on short-term.

In April 2016, Mohammed bin Salman started talking about the country’s plan to sell less than 5% stake of the largest international oil company.

Aramco’s IPO will start in 2018, said the CEO, Amin Nasser.

Mubasher Contribution Time: 07-Dec-2017 14:48 (GMT)
Mubasher Last Update Time: 07-Dec-2017 15:49 (GMT)

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