Breakingviews – Aramco’s latest IPO delay is a triple fail

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LONDON – Saudi Aramco’s interminable soap opera just commenced a new and problematic chapter. Early on Thursday, the kingdom finally appeared ready to launch the listing of a 5% stake in its oil giant. By the end of the day that was off again, with the latest delay set to last weeks or even months. It’s a triple setback.

The immediate problem is that this is Aramco’s second false start. Riyadh pulled its first attempt at an initial public offering last year amid concern the company wouldn’t hit Crown Prince Mohammed bin Salman’s desired $2 trillion valuation. Last month’s rocket attacks on critical Aramco infrastructure, which temporarily knocked out half its output of 10 million barrels of oil per day, justified further caution. Yet Aramco pressed on, readying its newly appointed bankers to launch the IPO this Sunday, only to put the process on hold again. The company hopes that third-quarter results will reassure investors following the outages, two sources familiar with the matter told Reuters.

The timing sucks, too. The Future Investment Initiative, Saudi Arabia’s annual event to convince foreign investors to help finance its Vision 2030 pivot away from oil, starts in less than a fortnight. Delaying Aramco’s IPO is nowhere near as disastrous as the fallout from the murder of journalist Jamal Khashoggi by Saudi agents last year, which prompted the heads of most western companies to stay away. But it means Saudi rulers lack a high-profile symbol of the country’s reform.

A delayed listing also extends doubts about the funding of Vision 2030. The $100 billion that would flow into state coffers in the unlikely event that Aramco hits a $2 trillion valuation would help pay for investments in technology and tourism. A successful foreign listing would bring a seal of approval from western capital markets and a slew of major institutional investors on Aramco’s share register.

That scenario already looks shaky. Flows of foreign direct investment into Saudi in 2018 were only 0.5% of gross domestic product, below the government’s target. Reuters reported on Thursday that 7 million Saudi investors could take part in an initial offering of 1-2% of Aramco in Riyadh, with rich locals also pitching in. Far from diversifying the economy, that could further tie Saudis to the fortunes of the oil market. Even if the IPO is quickly revived, it may fall short of fulfilling Saudi’s broader ambitions.

 

Reuters Breakingviews

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