Saudi decision to shelve Aramco IPO major blow to reforms

DUBAI/RIYADH (Reuters) — Saudi Arabia’s decision to shelve what was billed as the biggest share sale ever is a major blow to the credibility of Crown Prince Mohammed bin Salman but there are other ways to finance reforms to strengthen the economy, bankers and investors say.

The initial public offering (IPO) of five percent of state-owned oil giant Saudi Aramco was a centerpiece of the crown prince’s plan to diversify the kingdom’s economy beyond oil by raising $100 billion for investment in other sectors.

The 32-year-old ruler, widely known as MbS, also promised that listing Saudi Aramco on international stock markets would help create a culture of openness in the secretive kingdom and make it more appealing to foreign investors.

The decision to shelve the IPO raises doubts about the management of the process as well as the broader reform agenda, sapping the momentum generated by Prince Mohammed’s dramatic 2030 Vision announcement in 2016 that helped propel him to power in the world’s top oil exporter.

“The problem is: the more it gets delayed and the more there’s not clarity on why it’s getting delayed and what the issues are, the more it undermines confidence,” said James Dorsey, a senior fellow at Singapore’s S. Rajaratnam School of International Studies (RSIS www.rsis.edu.sg).

“He’s been very good at creating expectations but not as good at managing expectations,” said Dorsey. Industry sources told Reuters this week that both the international and domestic legs of the IPO had been postponed indefinitely. Energy Minister Khalid al-Falih said the government remained committed to conducting the IPO at an unspecified date in the future.

“The reform process has to be judged on its entirety and over a period of years but this will negatively affect perceptions of its credibility overall, considering that the IPO was promised in such high-profile terms,” said Richard Segal, senior analyst at Manulife Asset Management www.manulifeam.com in London.

Prince Mohammed launched his Vision 2030 program with promises to fundamentally transform Saudi Arabia’s economy and open up its people’s cloistered lifestyles. He has implemented a series of high-profile reforms, including ending a ban on women driving and opening cinemas in the conservative kingdom.

But those moves have been accompanied by a harsh crackdown on dissent, a purge of top royals and businessmen on corruption charges, and a costly war in Yemen now in its fourth year.