Markets Mohammed bin Salman oil OPEC saudi arabia saudi aramco Uncategorized

Saudi Arabia Calls Off ‘Zombie’ Aramco IPO

Turns out "black box" and "public company" aren't consistent with one another.

You know what? Screw it.

That’s apparently the approach Mohammed bin Salman has decided to take when it comes to the highly-anticipated Saudi Aramco listing.

This prospective IPO has been the subject of intense debate for two years running, and early last month, in a lengthy piece, Bloomberg suggested the listing might be a pipe dream (get it? “pipe” dream?).  Part of the problem, Bloomberg said, is the U.S. President. To wit, from the linked article:

In early 2016, Mohammed bin Salman said he planned to sell shares in the kingdom’s crown jewel: Saudi Aramco, the giant energy company that produces 10 percent of the world’s oil and finances the Saudi state. The initial public offering—planned for 2018—would be the deal to end all deals, raising more than $100 billion for a new sovereign wealth fund, creating the world’s most valuable listed company, and funneling hundreds of millions of dollars in fees to Wall Street’s elite banks. MBS, as the 32-year-old crown prince is known, said the company would be worth at least $2 trillion—more than double the current market valuation of Apple Inc.—and perhaps as much as $2.5 trillion.


[Now], the company finds itself caught in geopolitical crosswinds once again. Riyadh needs higher oil prices to fund its national budget and get the Aramco valuation closer to the $2 trillion target MBS wants. But that’s antagonizing Trump—Saudi Arabia’s most important ally—and other customers, notably China and India, the world’s second- and third-largest oil consumers. On April 20 the U.S. president took to Twitter to lambaste the Saudis’ push for higher oil prices. “ Looks like OPEC is at it again,” Trump tweeted. “Oil prices are artificially Very High!” Since then, Trump has issued more tweets about oil, Saudi Arabia, and the Organization of Petroleum Exporting Countries. In one, he said he’d persuaded Saudi King Salman to raise production in order to lower prices.

That assessment came three months after Bloomberg got their hands on some leaked documents which gave the public its first glimpse into Aramco’s finances. Long story short, it is indeed the world’s most profitable company (and by a country mile).

Their net income was nearly $34 billion in H1 2017. As Bloomberg wrote in April, “the internal figures show Aramco’s income easily outstripping U.S. titans like Apple Inc., JPMorgan Chase & Co. and Exxon Mobil Corp.” Here you go:

It’s also debt free, a rather notable factoid considering the industry.


Oh, and their cost of production is like $4/bbl. That compares to $20/bbl for Exxon and Shell. So that’s pretty good. The comparison with Exxon and Shell is a joke – flat out:


But Bloomberg’s analysis also laid bare some of the details behind the tax regime Aramco is subject to. Additionally, a revised royalty system means rising crude prices entail larger payouts to Riyadh. Considering MBS’s ambitious plans for the Kingdom and the ongoing war of attrition in Yemen, it’s not entirely clear why potential investors shouldn’t expect that, in the event it’s “necessary”, the Saudis won’t simply raise taxes on the company at the expense of profitability.

Whatever the case, Aramco looked increasingly like a “zombie IPO”. And although zombies aren’t easy to kill, it looks like this one is dead and buried because according to Reuters, Riyadh “has called off both the domestic and international stock listing”. Here’s more:

The financial advisors working on the proposed listing have been disbanded, as Saudi Arabia shifts its attention to a proposed acquisition of a “strategic stake” in local petrochemicals maker Saudi Basic Industries Corp 2010.SE, two of the sources said.

“The decision to call off the IPO was taken some time ago, but no-one can disclose this, so statements are gradually going that way – first delay then calling off,” a Saudi source familiar with IPO plans.


Lawyers, bankers and auditors are all essential in the drafting the prospectus, a formal document that provides essential details on the company.

“The message we have been given is that the IPO has been called off for the foreseeable future,” said one of the sources, a senior financial advisor.

“Even the local float on the Tadawul Stock Exchange has been shelved,” the source added.

So there goes that.

It’s not entirely clear what this means for “Vision 2030”, but suffice to say there are probably a whole lot of really – really – disappointed banks out there for whom participating in this whale of a deal would have meant massive windfalls.

Bottom line: It turns out that taking a black box public isn’t all that easy to do because, you know, the term “black box” isn’t generally consistent with the word “public.”


4 comments on “Saudi Arabia Calls Off ‘Zombie’ Aramco IPO

  1. calh0025 says:

    So Saudi Aramco shelved… buy Tesla and take it private, move the HQ to SA, have an IPO, pull the same trick but fast enough it works?

  2. Louis Desy says:

    I expected with oil prices sort of up for the moment that they would have rushed to market.

    Are they expecting oil to get over $100 anytime soon?

  3. Anonymous says:

    I think they weren’t prepared to disclose the required factual listing prospectus information, e.g. rapidly declining oil reserves, etc. Also, the Saudi royal family would lose too much of their current ‘de facto’ international political power.

  4. FC Norris says:

    The taxes were crazy & something about the ownership structure was very strange

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