Daily Management Review

Aramco chooses Moelis & Co. to support IPO and starts to think about SPO


02/08/2017


Saudi Oil Corporation Saudi Aramco hired US investment bank Moelis & Co. as a consultant for initial public offering of its shares.



Amount of the transaction and the amount of Moelis & Co’s remuneration are not specified, yet, according to some estimates, the sum will be record for any IPO consultant.

Saudi Aramco’s IPO is expected to become the world's largest initial public offering, and is a key element of the government's plan of Saudi Arabia. Saudi authorities plan to sell less than 5% of Saudi Arabian Oil Co. by 2018, as part of the Crown Prince Mohammed bin Salman’s plan to create the world's largest sovereign investment fund and reduce economic dependence on hydrocarbons.

The initial public offering is not even fully prepared, yet Saudi Aramco is already examining a possibility of the secondary offering (SPO). The state corporation held talks on this matter with the Singapore Exchange Singapore Exchange (SGX), Reuters reported with reference to sources.

The agency’s interlocutors also told that Saudi Aramco is considering placing its shares on several major grounds, such as New York, London, Hong Kong and Japan. In addition, Singapore's sovereign wealth fund (GIC) may be interested in acquisition of shares in the Saudi state-owned company. The final decision will depend on financial aspects of the transaction and evaluation of the largest oil company in the world. 

All these actions are going within partial privatization of its main business. It’s not easy to assess a state oil company of such a large size. Earlier, Prince Muhammad said that Aramco’s value during the IPO could reach $ 2 trillion, or even more.

Such income would be more than enough to cover annual budget deficit of the Kingdom, which in the past two years has been close to the abovementioned figure. Saudi Arabia’s budget for 2017 was approved with a deficit of "only" 52.8 billion dollars.

In fact, falling oil revenues was the main the problem that made the world’s largest oil producer to reflect on sale of part of Saudi Aramco. Another thing is that the moment for privatization is not yet perfect. Though oil prices climbed up a little, they haven’t even reached $60 for barrel.

Saudi Aramco has not made a final decision even about the IPO. Accordingly, it is not clear on what grounds IPO will be carried out - needless to say that all leading exchanges of the world are fighting for this right. Saudi Arabia itself expects to list its main company on its own stock exchange Tadawul. Before, however, the largest in the Middle East marketplace should expand significantly as it is too small for Saudi Aramco now.

As for the secondary offering, Khalid A. Al-Falih, Minister of Energy, Industry and Mineral Resources of Saudi Arabia said earlier that the state-owned company may hold SPO on several exchanges simultaneously. They say that any proposals will be considered. However, both Saudi Aramco and Singapore Exchange refused to comment to Reuters.

At the end of last year, Saudi media reported that Saudi Arabia may gradually privatize up to 49% Saudi Aramco in the next 10 years. Yet, it’s hard to believe in the plan’s feasibility. If oil prices remain low, a large-scale public offering will be unprofitable because of underestimation of the company. And if oil quotes grow steadily, the kingdom simply won’t need to sell of such a significant stake in the company. 

source: reuters.com






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