Aramco IPO could be heading to Asia

Berry Group / Energy  / Aramco IPO could be heading to Asia

Aramco IPO could be heading to Asia

By Dr. Cyril Widdershoven – Berry Commodities – Global Head of Strategy & Risk

Grand scale (ad)ventures or Mega Projects have been making headlines for decades, while looking at Dubai, Doha or Riyadh. Still, the Aramco IPO story, proponed by Saudi Crown Prince Mohammed bin Salman, beats them all.

The battle for a stake in the oil world?s largest cookie-jar, Saudi Arabia?s national oil company Saudi Aramco, keeps fueling a feverish investment sentiment. After years for preparations, delays and possible disappointments, international investment bankers are again courting the oil giant?s management, and the Saudi government, to get a stake in the IPO. At the same time, the world?s largest stock exchanges, LSE, NYSE and HKEC, have been pitching to the giant again recently. The possibility of listing of Aramco, which is expected to raise around $100 billion, would be a major boon for the respective bourses, currently confronted by low trading volumes and volatility in the financial markets.

Western finance markets still seem to expect that the Kingdom?s Treasure Trove will be heading to them, but this could be a real “fata morgana” (mirage) in the end. Without leaving the Western options, especially LSE and NYSE, the real price could be heading to Asia. The latter move would be consistent with Saudi Arabia?s ongoing Eastern Orientation, as most investments and clients of the Kingdom are in China, India and the other Asian markets. It would be very functional to list Aramco at least for a major part on Asian bourses, as it fits a major geopolitical-economic strategy. Locking in markets, clients and financial backing in Asia, Aramco?s power position for its future developments would be much stronger.

At the same time, in looking to Asian investors to take the lead in the IPO, Aramco will also be able to be more flexible in its overall transparency strategy. Chinese, Indian or SK/Japanese investors will be less inclined to ask the typical western questions about reserves, financials, political interference and the role of the Saudi Royal Family, than would be the case with European institutional or pension funds.

Asian investors and bourses also would see more advantages in taking a share in Aramco, due to the possible ?key-function? such a stake would have in opening up Saudi projects for Asian contractors and operators. Money here really makes the world go round, as energy and investment projects are the fuel for Asian companies to get involved.

The Asian focus already surfaced at the end 2018, when sources reported that some of China?s biggest state-owned banks were invited to pitch for the IPO too. The latter, indicating that Industrial & Commercial Bank of China and Bank of China were asked, seems to be still the case. Chinese and other Asian bankers are flocking on a regular basis to hotels in Riyadh, Khobar and Dhahran. Even though no final decision has been made by Aramco, Western bankers will still need to compete with their Asian counterparts.

The Chinese market is for Aramco, and Saudi Arabia, a main target for the next few years. To link Chinese financials to the Aramco IPO only will increase the strategic link between both countries. However, the chance that ICBC will be part of the IPO is very large, as the latter has participated as a lender for several Aramco projects already. At the same time, BOC was also co-manager on Aramco?s $12-billion debut bond sale in April. The future of the IPO and its deadline could be decided in the near future, as Aramco has invited more than 20 advisory firms from the U.S., Europe and Asia to come to the Kingdom. No specs or deadlines have been given yet, but the heat is on.

Overall, the fata morgana, as some have been calling the IPO, is slowly becoming reality. Western analysts should realize that the IPO is not only to get a cash inflow of $100 billion, or to have Aramco listed as the largest company in the world, valued at $2 trillion. Both financial figures are dreams; while they could become a reality, this remains to be seen.

A success for the Saudi Crown Prince Mohammed bin Salman (MBS) is needed here. He became the golden boy after presenting the Aramco IPO to the world. Due to internal frictions and the Khashoggi murder, the golden prince has become a bit dented, but the future of the Kingdom still depends on him. Young Saudis are betting their future on him, not on the IPO?s revenues.

That said, a successful IPO undoubtedly will strengthen MBS and support Saudi?s economic transition into the future. With the IPO, any remaining dents in the Kingdom?s shine could be forgotten, setting up a multiplier to push it into the major league of nations.

By Dr. Cyril Widdershoven for