September 10, 2019 / 6:52 AM / 9 days ago

Saudi Aramco prepared for foreign float alongside main domestic listing

ABU DHABI/RIYADH (Reuters) - Saudi Aramco is primed to float on international markets to complement a planned primary listing at home, the Saudi Arabian oil giant’s chief executive said on Tuesday.

Aramco’s initial public offering (IPO) would happen “very soon”, Amin Nasser cited Saudi Arabia’s new energy minister Prince Abdulaziz bin Salman as saying, adding that the final decision on the venue and timing rested with the government.

“We have always said that Aramco is ready whenever the shareholder makes a decision to list ... so we are prepared, that’s the bottom line,” Nasser told reporters, adding:

“It is going to be the primary listing, to list locally, but we are ready also for listing outside in other jurisdictions.”

Saudi Arabia, which has long planned an international IPO of Aramco, now plans a gradual listing of the world’s top oil producing company on its home market, sources familiar with the matter said. The IPO is planned for 2020-2021, but could happen by the end of this year.

Aramco’s board last month decided that listing in New York, an option favored by Crown Prince Mohammed bin Salman, would carry too many legal risks, sources told Reuters. He had hoped Aramco would be valued at $2 trillion, before plans for the IPO were put on hold last year, the sources said.

London, Hong Kong and Tokyo have also been keen to woo Saudi officials to trade shares in Aramco on their exchanges.

The flotation, which could be the world’s biggest IPO, is crucial for Crown Prince Mohammed’s plans to diversify the Saudi economy away from oil revenues.

The IPO plan has rapidly gained momentum in recent days and Nasser welcomed the appointment this month of the head of the kingdom’s sovereign wealth fund PIF as Aramco’s new chairman, Yasser al-Rumayyan, saying he brought “a lot of riches”.

Rumayyan, a close ally of Crown Prince Mohammed, took over from former energy minister Khalid al-Falih in a move to separate Aramco from the ministry, a step Saudi officials have said was important to pave the way for the IPO.

The separation aimed to ease transparency concerns, but some investors remain wary of Riyadh’s continued control.

Rumayyan’s position as head of the PIF, the body tasked with delivering Crown Prince Mohammed’s economic transformation plan, means a close link with the government persists.

Amin H. Nasser, president and CEO of Saudi Arabian Oil Company, Saudi Aramco, speaks at the 24th World Energy Congress (WEC) in Abu Dhabi, United Arab Emirates September 10, 2019. REUTERS/Satish Kumar

Aramco has this year taken steps to address misgivings over transparency, including revenue flows, by opening its books for the first time to obtain a public credit rating ahead of its debut bond. But an international IPO would garner more scrutiny, including over dividend payments.

“For bond investors it’s different, but for potential IPO investors a central consideration is being minority shareholders in a company so closely linked to the government’s strategies,” said Monica Malik, chief economist at Abu Dhabi Commercial Bank.

While some investors welcomed Rumayyan’s appointment as a “positive” step, others said it did not dispel concerns over governance given the economy’s heavy reliance on oil.

“There seems to be more of an alignment between the sovereign wealth fund, Saudi economic policies and Aramco´s potential new role there. This link is what ... we need to be monitoring carefully,” Sergey Dergachev, a manager of emerging market corporate debt at Germany-based Union Investment, said.

Nasser said Aramco would have an “arms-length” relationship with the energy ministry with the appointment of oil veteran Prince Abdulaziz as energy minister.

“The guidelines for production are going to come from the ministry, there is no change when it comes to production targets or maximum sustained capacity,” Nasser added

CLEANER ENERGY

Nasser told the World Energy Congress in Abu Dhabi that oil and gas will remain at the heart of the global energy mix for decades to come and that Aramco was also taking steps to meet the climate challenges.

“We have heard loud and clear the call from stakeholders and society at large for cleaner energy. The world faces an incredible climate challenge and we need a bold response to match,” Nasser said.

Aramco’s upstream carbon intensity is one of the world’s lowest, at about 10 kilograms of CO2 per barrel of oil equivalent, and based on third party verification of greenhouse gas emissions, its methane intensity in 2018 was 0.06% - one of the lowest in the industry, Nasser said.

Since Crown Prince Mohammed first proposed a stock market listing in 2016, climate change and new green technologies are putting some investors, particularly in Europe and the United States, off the oil and gas sector.

Nasser said Aramco was investing in technologies to make car engines more efficient with lower emissions, to use hydrogen fuels, convert more crude to chemicals and capturing CO2 which can be later injected into oil reservoirs.

Slideshow (5 Images)

He also criticized policies that do not appear to consider the long-term nature of the oil and gas business.

“We have already seen the impact of what I call a ‘Crisis of Perception’ on long-term investment, and if it continues supply shortfalls will follow as night follows day,” Nasser said.

“That would hurt the competitiveness of national economies, threaten their energy security, and potentially create social disruption - by making energy less affordable. The world can no longer afford such policy miscalculations.”

Reporting by Rania El Gamal, Dahlia Nehme, Alex Cornwell; Writing by Tuqa Khalid and Ghaida Ghantous; Editing by Tom Hogue, Louise Heavens and Alexander Smith

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