Careem on lookout for acquisitions

Ever since the IPO was first suggested, with a valuation of as much as $2 trillion put on Aramco, a lot of commentators have been looking for reasons as to why it would not happen, or why if it did, it would not reach anything like that kind of value.

Nothing is set in stone yet, and no official estimates have been issued, but if Saudi Arabia privatized just 5 percent of Aramco valued at $2 trillion, that would be by far the biggest IPO in history, releasing $100 billion of equity onto Saudi and other global markets. It would be an event of unprecedented financial consequence.

As the cornerstone of the strategy contained in the National Transformation Program (NTP) 2020 and the Vision 2030 policy documents, it has also been regarded as essential to economic change in the Kingdom.

Skeptics were quick to argue with the valuation. It could only be reached if the Aramco holding company and its reserves were the subject of the IPO, they said; it would face opposition from within the Kingdom, it was suggested, and it would be impossible to implement because of the loss of tax revenue it would represent to the Saudi government.

Of course, much depends on the oil price at the time of the IPO. Some forecasts see it reaching $75 a barrel by the end of 2018, which could put a minimum valuation of $1.4 trillion on Aramco and an IPO value of $70 billion.

Reuters reported that one energy consulting firm, Sanford C Bernstein of London, believed the size of Aramco oil reserves — bigger than most others in the world — could enable it to hit the $2 trillion valuation with ease, though that estimate did not weigh political risks.

There is a long way to go in the Aramco IPO story, and there will be plenty of twists and turns. But for the moment the tax reform has swung the pendulum back toward the higher end of the valuations for this transformational transaction.

There are plenty of other reforms the Saudi government can initiate to enhance the value of this crucial transaction. The lesson is that the industry “experts” should not jump to conclusions before they are aware of all the facts. Frank Kane is an award-winning business journalist based in Dubai. He can be reached on Twitter @frankkanedubai