OPINION: The proposed share sale in Saudi Aramco has been a bruising experience for Crown Prince Mohammad bin Salman.
As a partial flotation nears, the world’s biggest integrated oil and gas group is not nearly as attractive an investment in the eyes of the world as he had hoped.
The initial public offering is meant to raise cash to broaden the base of the economy away from fossil fuels.
The move is also a display of personal power by the young man behind the Saudi Arabian throne, and it could yet be the biggest IPO ever if it meets its $25 billion target price.
Few thought a conservative country such as Saudi Arabia would ever be willing to sell off part of its national energy company.
The 34-year-old Crown Prince saw the flotation as a sign the Saudi economy and wider society was opening up and modernising fast, but he may now be counting the cost of over-ambition in the face of market realities.
He had hoped to raise $100 billion and place Aramco at the heart of global investment portfolios.
But weaker oil prices and the attacks by Iran-aligned Houthi rebels on Aramco infrastructure in September have undermined the IPO attempt.
There has also been concern about Aramco’s internal corporate governance and worries the offer document spells out that the company can change dividend policy without prior notice.
The prospectus promises Aramco will pay out a dividend of $75 billion next year, but that yield of 4.4% to 4.7% is considerably lower than that offered by Western majors such as ExxonMobil and Shell.
In the past four years since the IPO was first mooted, opposition to oil as a primary energy source has intensified.
As one correspondent at UK broadcaster the BBC put it: “A fossil fuels company owned by an absolute monarch in a volatile region is not an easy sell for many Western (investment) firms pursuing the latest trend in investment policy of environmental, social and governance criteria.”
This has meant that the original plan to sell 2% of Aramco shares on the local exchange and a further 3% on international stock exchange such as London has had to be scrapped.
This week Riyadh pulled the plug on roadshows in the US, Asia and Europe in a move to concentrate on rich Saudis rather than global fund managers.
The Crown Prince is still hoping for outside interest, not least from regional sovereign wealth funds such as Kuwait plus state-owned companies as far afield as Russia and China.
The base offer outlined in the Aramco official prospectus says 1.5% of its shares will be sold at between 30 and 32 Saudi riyals ($8 to $8.5) each.
At the top end, that could see the IPO just beat the $25 billion total raised by China’s retail website Alibaba five years ago.
Early hopes that Aramco, the world’s most profitable company with net earnings last year of $111 billion, would achieve a $2 trillion valuation have also been whittled down to around $1.6 trillion to $1.7 trillion.
That would still make it worth vastly more in total valuation terms than the digital giants Facebook or Google.
The flotation may fall short of what the Crown Prince wanted, but Aramco will have new status as a stock listed and valued business — and there could even be more share sales in the future.
(This is an Upstream opinion article.)