Sunday, 3 April 2016
Saudi Arabia to Sell ‘Less Than 5%’ of State Oil Company
APRIL 1, 2016
Saudi Arabia plans to sell “less than 5 per cent” of its state oil company in a public offering that could come as soon as next year, according to the kingdom’s deputy crown prince.
Riyadh will offer shares in all of Saudi Aramco and not just in its subsidiaries, Prince Mohammed bin Salman told Bloomberg. The listing on the domestic Tadawul stock exchange would take place no later than 2018.
The world’s largest oil-exporting nation is struggling to contain a burgeoning deficit following a near 70 per cent collapse in the crude price since mid-2014. The Saudi government recently unveiled spending cuts, subsidy reforms and called for privatizations.
The rest of Saudi Aramco – which pumps more than 10m barrels of oil a day – would remain under government ownership but would be controlled through a sovereign wealth fund. The Public Investment Fund holds stakes in other domestic entities such as the petrochemicals company Saudi Basic Industries Corporation.
The inclusion of Saudi Aramco would create “the largest fund on earth”, the prince said, adding that its value would surpass $2tn.
Prince Mohammed has become Saudi Arabia’s main powerbroker since his father, King Salman, ascended to the throne last year. Alongside his role as defense minister, he is leading efforts to restructure the country’s economy.
Saudi Aramco said in January that the country was studying the best mechanism for an initial public offering, which could include listing shares in the parent company or in a bundle of assets such as its global refining businesses. Khalid Al Falih, Saudi Aramco’s chairman, said recently that the company was preparing a study due for release in April or May on its options for the listing.
“The mother company will be offered to the public as well as a number of its subsidiaries,” said the 30-year-old prince, who last year brought the state oil company under his aegis when he became chairman of the Saudi Aramco supreme council.
The move to enable private investors to own a portion of Saudi Arabia’s oil riches via the parent company, as suggested by the prince, would mark a dramatic shift in the kingdom’s attitude to its most valuable resource. Saudi Arabia is trying to curb its dependence on oil revenues and is shifting towards new sources of income and investment, as lower crude prices have driven home the need for a diverse economy.
Prince Mohammed said he had ambitions to transform Saudi Aramco from an oil and gas company into an energy and industrial conglomerate. Earlier this year, he also said that a listing would boost transparency and help prevent corruption.
But bankers and industry analysts have raised questions in recent months about how the kingdom would cede any control of an entity so bound up with the national interest.
There are concerns as to how Saudi Arabia would handle disclosing information about the country’s oil reserves and production capacity, which are currently closely guarded secrets. Given the size of the company, any flotation on Saudi Arabia’s domestic exchange would also have to be carefully structured so as not to distort the stock market’s balance.
The prince also cast doubt on Saudi participation in a deal among leading oil producers to freeze output, saying it would only take part if its regional rival Iran also complied. Tehran has repeatedly said it will not restrain its production as it recovers from years of sanctions against its oil industry.
Last month a senior OPEC delegate said Saudi Arabia’s compliance was not contingent on Iran.