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Saudi Crown Prince reassures investors of a 2018 IPO listing for $2 trillion Aramco

By Patrick Higgins  |  26/10/2017 15:18
Saudi Aramco's 2018 IPO is entirely on track, according to Saudi Arabian Crown Prince Mohammad bin Salman, despite widespread confusion over which exchange Aramco's IPO will be listed.

Saudi officials have commented on the attractiveness of the London, New York, and Hong Kong exchanges, with London being singled in as a likely candidate. However, there is competition from elsewhere, such as Saudi's domestic exchange, the Tadawul.

In a statement released to the press, Prince Mohammad reiterated that Aramco's total value is about $2 trillion, after much speculation about whether this valuation had been inflated. The prince also sought to reassure investors that the IPO had not been derailed or discarded, as the continued lack of exchange choice for international and domestic trading had prompted concerns of a push-back or a change of plans.

Aramco's IPO, despite only being 5% of the company's total value, will be the largest IPO in history at around $100 billion. This is extremely attractive and has incentivised some regulatory individuals to try and bend regulation rules to secure such a lucrative IPO listing. A prominent example is that of the CEO of London's Financial Conduct Authority, Andrew Bailey. Mr. Bailey, in a statement to Westminster two weeks ago, admitted to meeting with Saudi Aramco officials prior to the FCA's July publication of proposals suggesting a new categorical classification for companies majority-controlled by a sovereign government. It can be deduced that the introduction of such schemes was aimed at watering-down London's financial regulations in order to secure Aramco's listing, which would bring in revenues in the form of fees in the range of hundreds of millions of pounds for investment bankers, lawyers, and other white-collar City professionals.

However, if the IPO is still to take place in 2018, an exchange choice must be made. Even if a selection is made within the next month, the IPO's timing is still questionable, as the listing must meet the legal and regulatory requirements of the exchange's jurisdiction. In addition to this, oscillations of the price of oil will also reflect on the timetable of the IPO.

Aramco's transition towards public offerings is all part of Saudi Arabia's Vision 2030 plan, which was introduced last year by Prince Mohammad. It is a government directive, aimed at reducing Saudi Arabia's reliance on revenue on oil & natural gas and moving towards economic diversification. Such diversification would include the development of the public sectors, including education, infrastructure, and health, as well as fostering the development of the Saudi domestic financial markets into a market force to rival that of Dubai. This push to rival regional rivals such as Dubai or Doha is partly why the Tadawul is pushing for the Saudi government to list Aramco domestically for international and domestic exchanges. Doubts remain, however, as to whether the Tadawul would be capable of handling an IPO of this size, and if the 5% percentage would be decreased due to these concerns.

Saudi Arabia is right to be pushing for structural reform. Prince Mohammad, who exerts tremendous control over Saudi government decision making, is a massive force for Vision 2030. The prince recognises the decline of conventional fossil fuels worldwide, as well as the dangers of reliance on a saturated market. Though much of this reform is economically-focused, the prince has also begun to change Saudi society, with the allowance of women to drive on their own starting from June 2018. For a strictly-conservative Islamic kingdom that requires women to have male guardians in public, this is a huge step. Prince Mohammad is pushing forward from two-different angles with these plans of restructuring to ensure that Saudi Arabia remains wealthy and prosperous into the future, and Aramco is just a small part overall. If an exchange is picked before the end of the year, the chance of a 2018 IPO happening is not too far-fetched.

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