The Saudi Aramco initial public offering, potentially the biggest equity sale in stock market history, has been buffeted by rumours that it will be delayed, shelved, confined to a Saudi listing only or converted into a private placement. While Saudi officials insist the IPO will go ahead, none of the rumours can be ruled out. If there is a set plan to make Aramco's market listing the centrepiece of the Saudi attempt to reinvent the economy, no one outside of the Saudi royal family seems to know about it. Confusion reigns.
The outline of the deal, designed to unleash an economic revolution in a country dangerously dependent on one product – oil – and government jobs, is no clearer now than it was more than a year and a half ago, when Crown Prince Mohammed bin Salman suggested the IPO could value the world's biggest oil company at $2-trillion (U.S.) or more. The plan was to sell 5 per cent of Aramco to raise about $100-billion. The money would be funnelled into the sovereign wealth fund, whose fortune (now $230-billion) would help to ease the transition away from oil.
While the vision was in place, the mechanics weren't. The initial idea was a dual listing in 2018 on the Saudi exchange, the Tadawul, and a big-name international exchange, probably New York or London. But New York and London presented formidable obstacles.
A New York listing would expose the Saudi government to the risk of lawsuits related to the Sept. 11, 2001, terrorist attacks (15 of the 19 airliner hijackers were Saudi citizens). A "premium" listing – one that meets the highest standards – in London would need special dispensation from the London Stock Exchange. That, in turn, requires no less than 25 per cent of the shares to be sold to the public. The very notion that the LSE might water down its traditional listing requirements to attract Aramco did not sit well with British investor-rights groups, who argued that the 25-per-cent rule was designed to give minority shareholders some say on how the company is governed.
The obstacles to listing in New York or London may have spooked the Saudi royal family, which has the ultimate say on if, where and when the Aramco shares will be sold. In October, various unidentified sources hinted that the international component of the IPO could be killed off, with Aramco shares traded only on the Tadawul. Other reports said the whole IPO could be delayed or outright abandoned in favour of a private sale.
Late in the month, Saudi officials tried to put some of the rumours to rest, but only partly succeeded. Fear not, they said, the IPO is going ahead, but they didn't say where and Mohammed Al-Jadaan, the Saudi finance minister, openly raised the possibility that the international component of the IPO, the element that got oil investors all over the world excited, might not see the light of day. "We agreed and we have said publicly that Tadawul is certain," he told the Financial Times. "[But] are we going to go with an international market? If we go, where are we going? And, if we go, are we going public or are we going private?"
My own view is that an Aramco international listing is unlikely to happen in 2018 and that the Saudis will opt for a domestic listing, perhaps combined with a private placement (Reuters reported last month that the Chinese had offered to buy 5 per cent of Aramco ahead of any IPO). But I think any hesitation to list outside of Saudi Arabia would have more to do with audited reserve-reporting requirements than the threat of 9/11-related lawsuits or the 25-per-cent rule.
Aramco is the world's biggest oil company with the world's biggest stated reserves; that we know. But that's about all we know, since Aramco's reporting is notoriously opaque. We don't know how fast those reserves are depleting as a whole or among individual fields. According to BP's statistical review, Saudi Arabia has reported the same level of reserves – about 260 billion barrels – for almost 30 years. How can that be when the country has produced perhaps 100 billion barrels of oil over that time period?
Speculation on the true health and quantity of Aramco's reserves centres on Ghawar, the world's biggest field. It alone produces about five million barrels a day – half of Saudi total – and 6 per cent of the world's total. More than a decade ago, the late U.S. investment banker Matthew Simmons, author of Twilight in the Desert, used whatever Saudi reserve data he could find to argue that Ghawar – and hence Saudi Arabia – was facing peak production and might go into irreversible decline. The former CEO of a big, international oil company told me in London this week that he thought Ghawar's decline would happen soon. "So there is a lot of reason for a private sale with no [public] reporting disclosure," he said.
The Crown Prince, having announced the Aramco IPO, is unlikely to yank it outright, for fear of embarrassment. The sale may start and stop on the Tadawul, where reporting requirements are less onerous than those in New York and London. In any case, the young prince seems to have overestimated Aramco's ability to light up the oil investing world and deliver a quick and vast fortune to the treasury. The same may be true of his plan to reinvent the sclerotic Saudi economy. Economic revolution postponed?