Saudi Aramco deal throws IPO further into doubt

RIYADH: Saudi Arabia sought to raise billions through a historic Aramco IPO to remake its oildependent economy, but with those efforts floundering the state-owned giant is mulling what analysts call a risky Plan B.

The plan to float around five per cent of Aramco – expected to be the world’s largest stock sale – forms the cornerstone of a reform programme envisaged by Crown Prince Mohammed bin Salman to wean the economy off its reliance on oil.

But Aramco executives have repeatedly cited unfavourable market conditions to push back the IPO, earlier scheduled for this year, with many observers sceptical whether the listing will happen at all.

The oil giant is now mulling another approach to raise the billions of dollars it had hoped to reap from Aramco’s flotation.

Aramco chief executive Amin Nasser last week confirmed preliminary talks to acquire a ‘strategic stake’ in SABIC, the world’s fourth largest petrochemicals company that is 70 per cent owned by the government-run Public Investment Fund (PIF).

“A potential SABIC deal would affect the time frame for Aramco’s initial public offering,” Nasser told Al-Arabiya television, without elaborating.

Observers see the acquisition of a controlling stake from PIF as a complex alternative to raise muchneeded cash for the kingdom’s top sovereign wealth fund.

SABIC, Saudi Arabia’s largest publicly listed company, has a market capitalisation of around US$100 billion – the same amount the kingdom had sought to raise from Aramco’s IPO. Karen Young, a scholar at the Arab Gulf States Institute in Washington, described the approach to raise money as ‘accounting gymnastics’.

“Both Aramco and SABIC essentially are state owned, but on balance sheets they are separate entities,” Young told AFP.

“If Aramco buys a controlling stake in SABIC, it will put cash into the PIF and allow Aramco to claim an important asset which it can borrow against.”

The PIF, which hopes to control more than US$2 trillion by 2030, is involved in a host of big-ticket global investments – from Uber to a planned US$500 billion mega city in the kingdom’s northwest.

It seeks cash to pivot the economy away from oil after foreign direct investment in Saudi Arabia plunged last year to a 14-year low, according to a UN body, a blow to Prince Mohammed’s ambitious reforms.

“If liquidity is made available to PIF as a result of Aramco purchasing a 70 per cent stake in SABIC, this may lead to a complete abandonment of Aramco’s international or domestic IPO,” tweeted Mohammed al-Sabban, former adviser to the petroleum ministry.

“The question here is how PIF is going to spend this huge sum.”

But first to finance the acquisition of a strategic stake in SABIC, the largely debt-free Aramco is weighing tapping the international bond market for the first time, combined with bank loans, according to Bloomberg News.

Raising debt instead of selling shares to investors adds greater risk to Saudi Arabia’s strategy to use the PIF to overhaul the economy, experts say.