Saudi oil giant’s 5% flotation ‘needs effective planning’

Well-placed industry sources confirmed on Saturday that Saudi Aramco will sell shares in the “entire business” and not just in its refining or distribution operations.

As reported earlier, the company plans to sell a stake of approximately 5 percent — a move that, experts say, could value the company in the trillions of dollars and could result in its overtaking Apple Inc. as the world’s largest listed company.
The 5 percent sale was first announced by Deputy Crown Prince Mohammed bin Salman in April; it is part of Saudi Vision 2030 which aims to reduce dependence on oil revenues.
The oil giant will decide “very soon” on the list of investment banks and advisers to handle the flotation, Saudi Aramco CEO Amin H. Nasser told Bloomberg in Bahrain two days ago. 
“We are listing a part of the entire company, and not just downstream,” he said, referring to operations including refining and distribution.
Industry sources pointed out that Energy, Industry and Mineral Resources Minister Khalid Al-Falih too had spoken in the past about the 5 percent “including all operations of the company.”
“The company is readying internal financial statements in preparation for the IPO,” an industry source told Arab News.
In the Bloomberg interview, Nasser exuded confidence and said the IPO was going very smoothly. 
“We are on target,” he said. “We have made a lot of progress so far.”
The company plans to list shares on the Saudi stock market and is also considering bourses in London, Hong Kong and New York, Nasser said.
The company seeks to double its total production capacity for natural gas, including shale gas, from 12 billion cubic feet per day over the next 10 years, he said.
“We are one of the few companies that is still investing. We will continue to invest in our core business. Our rigs are increasing, and our overall activities are too,” he said.
“Gas is very important to fuel industries, especially in the petrochemical sector,” Nasser said.
The use of gas in power-generation and manufacturing also frees up more crude oil for export, he added.
The CEO’s comment was met with instant approval from oil industry experts.
“Saudi Aramco’s flotation, in my opinion, can be a success if planned well,” Tamer El Zayat, senior economist at the National Commercial Bank, told Arab News.
“Ostensibly, the CEO’s announcement reflects the Saudi government’s keenness to integrate its economy with the global one,” El Zayat added.
“Selling shares in the entire business and listing on international bourses will require accountability, transparency and adopting international standards and practices, which will bode well with investors,” he said. 
“Yet, timing will be crucial, especially that global capital markets might be facing a bout of uncertainty and additionally to avoid draining domestic liquidity, in already a dire state,” El Zayat said.
He said that although the process of opening the Saudi stock market to qualified foreign investors had faltered so far, attracting SR1 billion till date, Saudi Aramco flotation in my opinion can be a success if planned well.”
Local economists see Saudi Aramco’s partial privatization plans as a boon for the private sector and the non-energy areas of the Saudi economy. 
Analysts estimate that Saudi Aramco generated higher revenues than Apple and Microsoft combined in 2014, before the oil crash that began in the middle of that year.
Saudi Aramco outlined a plan known as In-Kingdom Total Value Add (IKTVA) last year, when the CEO said the company would spend more than $300 billion over the next 10 years, of which 70 percent would be local content.
One of IKTVA’s goals is to double the percentage of locally produced energy-related goods and services to 70 percent of the total spent by 2021.
Local economists see Saudi Aramco’s partial privatization as a boon for the private sector and the non-energy areas of the Saudi economy. 
“The partial privatization and listing of Aramco will surely attract foreign investors, boosting portfolio inflows,” Jadwa Investment said in a recent report.
The revenue the IPO brings in will be funneled into the Public Investment Fund. 
The fund’s aim is to finance strategic investments at home and abroad, which could give a much-needed boost to straggling Saudi industries outside the energy sector. 
Analysts expect the restructuring of the PIF, with its new mandate of investing 50 percent of its non-Aramco assets abroad, will contribute to significantly increasing the equity investment component of portfolio returns in the future, thus helping to diversify current account inflows.
In a recent address to attendees of the Oxford Energy Seminar in London, CEO Nasser outlined some key factors that will play a role in what he described as a “bright horizon” for the company, for the Kingdom, and even perhaps for the energy industry in general.
Nasser also discussed Saudi Arabia’s Vision 2030 in his speech, describing it as “a comprehensive blueprint for the Kingdom’s future” envisioning a strong, thriving Saudi Arabia built on a diversified and sustainable economy, and a nation capable of competing at a global level while offering full, high-quality employment to its people. 
In summing up and looking at the overall market ahead, Nasser expressed a sense of optimism for the industry.
“We view current market challenges as a passing storm set against an otherwise bright horizon,” he said.

Source: Arab News