General view of Aramco tanks and oil pipe at Saudi Aramco's Ras Tanura oil refinery and oil terminal in Saudi Arabia May 21, 2018.
LONDON (Reuters Breakingviews) - Saudi Arabia’s sale of its crown jewel always risked becoming a Greek tragedy. Ever since the Gulf Kingdom decided in 2016 on a public stock offering to sell 5% of Saudi Aramco, the world’s biggest oil producer and its main source of revenue, the interests of the seller and the anticipated horde of international investors have been on a collision course. A crash duly ensued.
Aramco’s ill-starred listing has been through four distinct stages. The genesis of the current strife came in 2017 when Mohammed bin Salman, the Saudi crown prince, insisted on a $2 trillion price tag for Aramco and set investment banks and exchanges around the world competing to make that happen.
That led to stasis, as the difficulties of achieving such a valuation and accommodating Aramco’s myriad environmental, social and governance headaches on a global bourse became clear. In mid-2018, things went quiet. A few months later, the murder of journalist Jamal Khashoggi by the kingdom’s agents made investing in Saudi assets verboten.
MbS should have waited. Instead, he displayed hubris. Saudi overhauled Aramco’s leadership in September and then revived its IPO, despite a drone and missile strike reported by Reuters to have been planned by Iran that knocked out half its oil output. The predictable result was a sort of nemesis. Aramco slashed its price to $1.7 trillion and, after foreign investors largely held back, cut the size of its offering from 3% to 1.5%.
Breakingviews has been covering all the twists and turns of Aramco’s tortuous journey. That’s encompassed our own stab at a discounted cash flow valuation, ongoing probes into where the company could conceivably list, and the masochistic experiences of foreign bankers, sentenced to months of Saturday flights to Aramco headquarters in Dhahran for a demanding client with little hope of fat fees.
Aramco got its deal away, with at least some non-Saudi interest and a book that in the end attracted 4.7 times the amount on offer. But the sale has come at the cost of leveraging its own citizens, companies and neighbours. That could end badly. Either way, MbS’s Vision 2030 programme to diversify the kingdom away from oil has had an imperfect beginning.
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Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.
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Breakingviews - Aramco: the IPO that succeeded and failed - Reuters
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