Aramco IPO May Be For Saudi Nationals Only

A potential partial privatization of Saudi Arabia’s state oil company, Saudi Aramco, would require the company to remove its veil of secrecy.

Analysts are guessing that the world’s biggest oil producer could be worth anywhere from $1 trillion to $10 trillion. That would make it the most valuable company on the planet.

Jason Tuvey, Middle East economist at Capital Economics, says: “A wave of privatizations would provide the government with some extra breathing space and allow fiscal policy to be tightened gradually. One big unknown, however, is the degree to which foreigners will be allowed, or would be willing to, participate in the asset sales.”

IPOs in Saudi Arabia are usually priced at a big discount to market value, as a way to distribute the country’s oil wealth to the kingdom’s citizens. However, the Capital Market Authority can allow foreigners to buy shares in IPOs directly on a case-by-case basis.

“The valuation of Saudi Aramco at IPO is largely meaningless when being sold to locals,” says Emad Mostaque, a strategist specializing in geopolitics, frontier markets and oil at London-based emerging markets consulting firm Ecstrat. “But it is likely to be higher than that of Apple, or whatever the largest company in the world is at that time, with a first-day pop all but ensured.” Mostaque adds that an Aramco listing would also increase public support for regime stability, as an increasing part of local wealth is tied up with the success of state institutions.

With no public disclosure of capital and operating costs, Aramco is difficult to evaluate, analysts at Oppenheimer stated in a recent report. “Since it is, and will always be, a state oil company, it is less transparent and less efficient than Exxon Mobil and should, therefore, trade at 20% to 30% lower multiples,” the analysts wrote.