DALLAS, (Reuters Breakingviews) - The initial public offering of Saudi Arabia’s state oil company promises oodles of fees and kudos for its underwriters. It also promises risk, and a battle over what the company is really worth – which is almost certainly less than the $2 trillion claimed by Crown Prince Mohammed bin Salman. If Aramco’s IPO is scrapped, as the Wall Street Journal suggested on Thursday it might be, there will be few losers.
Even though oil prices have increased more than 60 percent in the past year, the sum the prince put on the company in early 2016 looks far too ambitious. Plug a long-term price of $70 a barrel into the Aramco valuation calculator Breakingviews created last June, and the company would be worth some $1.6 trillion.
That would give Aramco’s investment bankers, led by Moelis , a nigh-impossible job. Underwriters often sell an IPO at a discount to fair value so investors can enjoy a boost following the listing. In this case they would be trying to sell at a big premium. True, Moelis loses many hours of labor and potential fees if the deal – which is officially still on track – falls through. But it would still get plaudits for having won the mandate, while being spared the pain of actually having to complete it.
Moelis and other bankers can still benefit if Saudi opts to raise money privately. The country needs oil to be around $85 a barrel in order to balance its budget this year, an official from the International Monetary Fund told Reuters in May. Renewed pressure from U.S. President Donald Trump to keep oil prices low may limit how much the Organization of the Petroleum Exporting Countries, which Saudi leads, can push prices higher. That suggests asset sales may be in order – or even a rerun of Aramco’s listing in a different form in future.
There are, though, bigger losers. Politicians from Trump to UK Prime Minister Theresa May went out on a limb to tout for Saudi’s business. Britain’s Financial Conduct Authority went further – it created a new kind of “premium” listing with less onerous requirements for state-owned companies, of which Aramco was the most obvious likely beneficiary. Reversing that if the IPO stalls would only make it look like the changes were for Saudi’s benefit. Whether it lists or not, Aramco has already made its mark.
- Preparations for the initial public offering of shares of Aramco, Saudi Arabia’s state oil company, have stalled, according to an article in the Wall Street Journal published on July 5 citing people close to the process.
- Doubts about the listing, which was first proposed by Saudi Crown Prince Mohammed bin Salman, have crystallized, the story said. It quoted a senior executive at Aramco saying: “Everyone is almost certain it is not going to happen.”
(Editing by John Foley and Martin Langfield)
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