31 October 2019


Full Report


  • Energy Minister’s statement reflects growing likelihood of Aramco IPO, but Crown Prince will delay further if he cannot secure high valuation
  • Crown Prince will welcome turnout at Future Investment Initiative, which suggests reputational concerns over Khashoggi killing have diminished somewhat
  • IPO will only generate limited funds for ambitious Vision 2030 projects, meaning Government will continue efforts to improve investor climate



Energy Minister Prince Abdul Aziz bin Salman– who replaced veteran Khalid al-Falih on 8 September – said on 30 October that the planned IPO of shares in state oil firm Saudi Aramco would come “soon”, but that Crown Prince Mohammed bin Salman (MbS) would decide the timing. This followed a newsflash on Saudi’s al-Arabiya television channel on 29 October, claiming Aramco would announce initial pricing for the transaction on 17 November, with the subscription period for investors opening on 4 December. These developments come as the Future Investment Initiative (FII) conference was held in Riyadh between 29 and 31 October, drawing high-profile attendees, including the US Treasury Secretary, Indian Prime Minister Modi, the head of the World Bank, and CEOs of banks and financial institutions. The Saudi General Investments Authority has signed 23 deals worth USD 15 billion during the conference, and Modi invited Saudi companies to invest up to USD 100 billion into the Indian energy sector during his keynote speech.

MbS announced his ambitious Vision 2030 reform agenda in 2016, which aims to diversify the economy and reduce dependence on oil revenues. To meet the extensive funding requirements necessary, MbS’s plan included selling a 5% stake in Aramco, which based on a USD 2 trillion valuation would raise USD 100 billion for the Public Investment Fund (PIF). This was set for early 2018, but difficulties in securing the valuation, largely due to low oil prices, have prompted delays. MbS has thus shifted to propose a more limited offering of 1-2% on Riyadh’s local Tadawul exchange. Recent developments, such as the 14 September attacks on Aramco facilities which prompted a credit ratings downgrade (see our 4 October Report) have further complicated efforts to secure a high valuation.

The IPO encountered a further delay earlier this month, with plans to publish a prospectus on 20 October suspended. However, this was likely to allow for the publication of Q3 financial results, as well as to make a final push to encourage international investor interest. Credible media reports on 29 October suggest that prospective investors have received unaudited figures setting out results up to Q3, showing that Aramco has earned USD 68 billion in revenue in the first nine months of 2019, highlighting its status as the most profitable company in the world. MbS will hope that this, combined with major local interest from wealthy Saudi citizens in the historic opportunity provided by the IPO, will help secure a sufficiently high valuation to proceed. Progressing will help MbS demonstrate he has met a promise to advance a key component of Vision 2030, which will be crucial for his domestic popularity, and given funding needs, it is likely the IPO will go ahead before the end of 2019.

However, MbS will opt to delay the IPO if the valuation remains too low, likely explaining why the Energy Minister did not commit to any specific date during his address. That said, if only a 1% stake is offered, even if the USD 2 trillion valuation is met, this will only secure USD 20 billion for the PIF, well short of Vision 2030’s needs, with the Neom megacity project alone set to cost USD 500 million. As a result, although further offerings of Aramco shares are likely, private investment will remain crucial to achieve Vision 2030. MbS will therefore welcome the improved attendance at the FII compared to the previous year, which was held in the aftermath of the killing of journalist Jamal Khashoggi, suggesting that reputational concerns regarding the incident have diminished somewhat. The Government will thus look to further advance investor-friendly policies and build on recent success in the World Bank’s Doing Business 2020 report – with the Kingdom listed as one of the top ten global business climate improvers – to maximise further foreign capital inflows over the coming years.

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