Saudi king nixed Saudi Aramco IPO plans: Reuters

Aramco IPO
According to a report by Reuters, King Salman of Saudi Arabia has pulled the plug on the proposed Saudi Aramco IPO after a number of roadblocks proved too much for the ambitious plan.

According to a report by Reuters, King Salman of Saudi Arabia has pulled the plug on the proposed Saudi Aramco IPO after a number of roadblocks proved too much for the ambitious plan.  Reuters photo by Edgar Su.

$2 trillion Saudi Aramco IPO in planning stages for two years

On Monday, Reuters reported that after two years of planning, Saudi Arabia’s King Salman shut down the proposed $2 billion Saudi Aramco IPO that would have seen the kingdom offer up 5 per cent of its national oil company.

The proposal was key to the Saudi economic overhaul and, at $100 billion, would have been the largest IPO ever.  It was championed by Saudi Arabia’s Crown Prince Mohammed bin Salman, the heir apparent to the world’s largest crude oil exporter.

According to Reuters’ sources with ties to the government, the king made his decision after meeting with family, bankers and senior oil executives during Ramadan, which ended in mid-June.

Those who took part in the discussions told the king that the IPO would ultimately undermine the kingdom and would bring full public disclosure of the massive company’s financial details.

The sources told Reuters that in late June, the king sent a message to his administrative office calling off the IPO.  His decision is final, according to a source.

“Whenever he says ‘no’, there is no budging,” the source told Reuters.

Another source told Reuters that “the king is obsessed with the idea of how history will judge him. Will he be the king who sold Aramco, who sold Palestine?”

Last week after rumours of the deal’s demise began to surface, Saudi Arabia’s Energy Minister Khalid al-Falih said the government remains committed to conducting the IPO in the future, but no details were given.

The Saudi government, however, told Reuters that it is continuing to work towards the IPO and is only waiting for the right time to pursue the deal.

“We are surprised that despite this statement, that the Government continues actively to plan for the IPO, Reuters persists in asking questions alleging that plans are halted,” a senior Saudi official told the news agency.

“Aramco’s shareholder is the Government of Saudi Arabia. His majesty, King Salman, has delegated management of the IPO to His Royal Highness the Crown Prince, and a Committee which includes the Ministers for Energy, Finance and Economy. Therefore, decisions around the nature and timing of the IPO, will be decided by the Committee for the Government’s approval,” the official told Reuters.

Crown Prince Mohammed bin Salman is working towards his Vision 2030 reform program and one of the Prince’s goals he’d hoped to see as a result of the IPO was to make fundamental changes to the kingdom’s oil-dependent, state-driven economy.

Reuters says the move by the king suggests that he is keeping the power of the crown prince in check.  Some investors argue that halting the IPO raises doubts about the government’s management of the IPO process and its commitment to making the kingdom’s economy more transparent.

Some industry insiders say preparations for the Aramco IPO have been slowed over the past months because of scepticism about the Crown Prince’s declaration that the deal would give the company a valuation of $2 trillion as well as concerns about the legal risks and strict disclosure requirements associated with a foreign listing.

In April, Saudi Aramco halted payments to banks and other advisors working on the IPO.  By mid-June, banks including JP Morgan and Morgan Stanley were invited by the king to pitch different proposals for a possible Aramco acquisition of a stake in petrochemicals giant SABIC, according to a Reuters’ bank source.

Reuters’ sources say the decision to halt the Aramco IPO means the king will be the deciding voice in for the foreseeable future.

“I’m not sure that I would see it as an undermining of the rule of the crown prince. It’s much more likely ensuring that he doesn’t go off the deep end,” James Dorsey, a senior fellow at Singapore’s S. Rajaratnam School of International Studies (RSIS) told Reuters.

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