Saudi Aramco delays launch of world’s largest IPO for ‘fine tuning’

Saudi Aramco delays launch of world’s largest IPO for ‘fine tuning’

access_time2019-10-22 10:00:48

Saudi Aramco has postponed the launch of its hotly anticipated initial public offering, the latest setback for what would be the world’s largest-ever stock market listing.

The state-oil giant, which had been preparing to give the go-ahead to proceed with the share sale on October 20, is delaying the IPO until December or January, two people familiar with the matter said.

“It is a last minute decision,” said one senior Saudi official. “A few things needed to be fine tuned including financial figures for the third quarter,” he said.

Aramco executives now want to issue a prospectus and then market the IPO — after getting third-quarter figures on production, revenue and profit — to better sell the listing to investors, said people familiar with the reasons for delaying the IPO.

Aramco already had faced pointed questions from investors about the viability of the listing. In a pre-IPO investor meeting on September 30 with Fidelity Investments, Aramco finance chief Khalid al-Dabbagh didn’t provide what fund managers considered standard information, including a deeper understanding of how the company determined its value, according to people with knowledge of the meeting.

Fidelity’s investment staff were also frustrated with the lack of clarity provided on the relationship between Aramco and the Saudi government, the people said. As the de facto leader of the Organization of the Petroleum Exporting Countries, Saudi Arabia attempts to set global oil prices by dictating Aramco’s production.

Aramco didn’t respond to a request for comment on the Fidelity meeting.

In a statement, Aramco said the company continues to engage with its owners, the Saudi government, on readiness for an IPO. “The company is ready and timing will depend on market conditions and be at a time of the shareholders choosing,” it said.

The delay is likely to again raise questions about whether Aramco and the Saudi government are serious about listing the kingdom’s prized asset and opening up the oil firm to scrutiny from global investors.

Crown Prince Mohammed bin Salman first announced plans for a listing in 2016 as the centerpiece of his sweeping economic and social reform program, known as Vision 2030. But the IPO was then put on hold because of valuation and disclosure concerns. The prince revived the plan to seek a listing earlier this year and in September appointed bankers to manage the share sale.

Until Thursday’s postponement, Saudi Arabian Oil Co., as Aramco is officially known, was expected to publish an IPO prospectus on October 25 and then hold an investor roadshow ahead of listing up to 3% of the company in November, according to a person familiar with the matter.

Aramco’s board was set to meet Friday to review market conditions and give the final approval to the government to proceed with an IPO.

Prince Mohammed, the kingdom’s day-to-day ruler, wants to use the offering’s proceeds to transform his oil-dependent economy by investing in new industries that will provide jobs for the country’s expanding youth population.

The revived IPO plan had already been dealt a blow last month when Aramco’s oil facilities were attacked by drones and missiles, taking out half the kingdom’s production for a few weeks. Saudi Arabia blamed Iran for orchestrating the attacks. Tehran denied involvement.

Following the September 14 strikes, Saudi officials discussed delaying Aramco’s IPO, but they later decided to press ahead, according to people familiar with the matter.

In response to the attacks, the US and Saudi Arabia have stepped up efforts to protect the kingdom’s oil production and held talks about connecting Saudi missile defenses to US systems. The US military also is deploying an additional 2,000 troops, two squadrons of jet fighters, three new antimissile systems and other equipment to Saudi Arabia in an effort to better prepare the kingdom to counter Iran.

The assault on the Aramco facilities and a series of attacks on oil vessels around the Arabian peninsula have heightened security concerns, discounting Aramco’s potential IPO valuation for some investors.

The valuation Aramco and its international bankers establish for the IPO will be important for investors. Prince Mohammed has put the firm’s value at $2 trillion, but analysts have pegged it closer to $1.5tn.

Bankers working on the listing in the past week recommended Aramco sell shares at a guide valuation of between $1.3tn and $1.7tn, people familiar with the process said.

In anticipation of the Aramco IPO, Saudi Arabia’s stock market has transformed itself in the past five years by opening to international investors and introducing investor friendly reforms.

The Tadawul, as the exchange is known, has roughly $500bn in combined market capitalisation of listed companies. It opened to direct foreign participation in 2015, and in 2019, benefited from more than $20bn of international inflows connected to its inclusion in global emerging market indexes.

Some foreign investors remain concerned about market transparency and how heavily the government intervenes in Saudi shares.


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