Saudi Aramco IPO May Not Happen If Oil Prices Rise
Apart from trying (and managing) to talk up oil markets in recent months, Saudi Arabia has been stoking investment banks as well with the plan to sell 5 percent of its most valuable asset and possibly the world’s most valuable company, Saudi Aramco.
The initial public offering (IPO) of shares in the state-run oil company, which Saudi officials claim is worth US$2 trillion, is now in the plans for 2018. Proceeds from the possible listing would go to diversify the Saudi economy away from oil.
But as 2017 begins, with oil prices in the US$50s compared to US$30s in January last year, Saudi officials may not see Aramco’s share sale as urgent as they did in early 2016 when they announced the plans for an IPO.
The Saudis expect the kingdom’s oil revenues to jump this year compared to last year. Then incoming U.S. President Donald Trump as well as recently passed U.S. legislation concerning Saudi Arabia may make Saudi officials reassess plans and take the IPO on other stock markets rather than on the NYSE.
In addition, a stake sale of Aramco would mean the Saudis sharing part of (even a small one) of oil proceeds with new shareholders. Last but surely not least, an IPO on any stock market would require Saudi Aramco to make financial and production figures public and let independent third parties look into its books and possibly the most guarded secret of Saudi Arabia – how much oil does it really have and how much it can pump?
At the end of December, Saudi Arabia announced some economic figures for 2016 and projections for 2017 in its budget plan for this year. In nominal figures, the Saudis managed to cut their budget deficit last year compared to 2015, but did not provide a percentage for how these billions of Saudi riyals stack up as percentage of GDP.
Total national debt last year was 12.3 percent of the projected GDP in fixed prices for 2016. Looking ahead to this year, Saudi Arabia expects total revenues to rise by 31 percent, with oil revenues seen 46 percent higher than in 2016. Non-oil revenues are estimated to increase by 6.5 percent on the year in 2017. Still, oil revenues are more than twice non-oil proceeds.